The Annual Total Effective Rate (APR) is the most important percentage of your loan offer: it concentrates all the expenses of a mortgage, namely the running costs of the bank, the insurance premiums associated with the guarantees and the basic interest rate. This is why the APR can change from one institution to another. This rate can also be fixed or variable …
What is a variable rate?
As its name suggests, the variable rate is a rate that changes throughout the life of the loan . Unlike the fixed rate which allows to know precisely the amount of the monthly installments, to support the borrower during all the repayment period.
Fluctuating both upwards and downwards, the variable rate is indexed on the 3-month or 1-year Euribor benchmark.
Qualified as the rate closest to the real , it is traditionally lower than the fixed rate; however, in the event of a rise in interest rates, it is essential to be able to assume larger monthly payments.
What is the current rate grid?
Today, the adjustable rate offered by brokers is around 1.75% for a 10-year loan, 2.15% over 15 years, 2.25% over 20 years and 2.45% over 25 years. .
To reduce the risks, it is possible to opt for a capped variable rate: in other words, a rate that can not exceed a certain ceiling, defined at the time of signing the contract. Thus, with a variable rate “capped +1”, some credit professionals can offer 1.45% for a loan over 10 years, 1.62% over 15 years, 1.91% over 20 years, 2 , 19% over 25 years and 2.82% over 30 years.
By way of comparison, the fixed rates proposed at least April 2017 are built on the average base of 1.40 to 1.85%, for a loan over 20 years and 1.66 to 2.04% over 25 years. .
The context that does not favor the use of the variable rate!
After having weighed more than 20% of loan volumes, in 2004 and 2005, today , variable rate loans now represent only 0.4% . And some institutions do not even offer them anymore.
Indeed, in a context of falling rates, these revisions are not interesting for lending agencies … Taking advantage of this very favorable situation, many borrowers having subscribed revisable credits were able to achieve beautiful financial operations until 2015.
Today, at a time of very low interest rates, and in a context of slight but gradual recovery, banks may have to re-propose these solutions. But this time, it’s not interesting for the borrower !
Indeed, if it is impossible to predict market developments, the current situation can not predict a further decline. At best, their evolution may remain minimal, but it still does not represent an interest to prefer it to a fixed, more secure rate .