If you consider villas in Catalonia or in Madrid, you must have wondered about getting a mortgage. Let’s learn more about the situation and the possibility of applying for a fixed or variable rate in this material.
Why is the Spanish property?
Inflation in Spain reached 7.4% this year, the highest level in 34 years. In this regard, both local residents and investors from abroad wonder about the issues related to security of savings from loss.
Financial advisors generally recommend two variants that secure from inflation:
- The first one is to buy gold, which is rising in price.
- The second is to purchase property, the value of which is also gathering pace.
As a result of the fact that buyers and experienced investors inject money into the property market to hedge against the detrimental consequences of rising inflation, property prices in Spain are rising at an average rate of 8% per year. Moreover, 2021 was the best year for housing sales: it can only be compared with 2007. Only 14 years ago, during the property boom in Spain, the market showed the same volume of sales. And a lot of transactions are made using borrowed funds of the bank. Investors often ask the question: Should a borrower choose a mortgage with a fixed or variable rate?
Fixed or variable interest rate?
In short, in today’s environment, in this highly inflationary context, we strongly recommend the borrower to choose a fixed interest rate.
We can all see that financial institutions and national governments are doing everything possible not to raise interest rates in order to protect the economy and ensure recovery from the pandemic. Countries argue that this inflation is temporary. Nevertheless, the fact is plain to see: given the recent geopolitical events, inflation will not only remain at its current level, but will increase significantly over the next years. This means an increase in interest rates in the near future, whether countries want it or not.
What happens to the variable interest rate?
If you have a mortgage with a variable rate and the credit institution keeps raising the rate over and over again every quarter, as expected, your monthly payments will spike to the point where you no longer have the financial capacity to meet them. This means that borrowers will declare themselves bankrupt due to higher interest rates.
Due to this, we recommend to take out a mortgage loan in Spain with a fixed interest rate. Whatever happens in the near future (be it a volcanic eruption, another pandemic, an economic crisis or a war), you will definitely be sure how much you need to pay off, in what payments and in what time frame. After all, your peace of mind is priceless.
However, you should be aware that some adventurous money lenders change the terms of their fixed rate loans slightly increasing them due to the predicted increase in interest rates. In this regard, if you intend to get a mortgage with the lowest possible interest rate, you should act swiftly. We wish you success.
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