Choosing Fixed or Variable Interest Rates on Loans? – Loan Finance and Money

If one chooses a fixed or variable interest rate on loans, many Norwegians wonder today.
Borrowing offers from banks and mortgage companies are different in that banks’ lending rates change in line with market rates, while mortgage lending rates are fixed for a period of one, three or five years. The banks can also offer fixed-rate loans, also with a fixed term of more than three years. The period during which the lending rate is fixed is often referred to as the term of the loan.

Mortgage companies allow you to choose between different bonding times.

money loan

This may look favorable when you take out the loan , but if your interest rate level goes down more than expected during the term of the loan , you may come out worse than if you had chosen a shorter loan period.

In practice, it is almost impossible to get around this problem by leaving the loan relationship. The mortgage company, upon redemption of loans before the end of the maturity period, will take a so-called premium.

When reduced interest rates in the market are expected, the interest rate conditions will often be most favorable the longer the bond period you choose.

When reduced interest rates in the market are expected, the interest rate conditions will often be most favorable the longer the bond period you choose.

When you cancel the loan, the mortgage company must repurchase the bonds, but at a higher price. In a market with falling interest rates, the value of the bonds rises.

If you have first chosen a fixed-rate loan in a mortgage company, you are therefore to a large extent bound to the agreed interest rate during the term of the bond, unless you want to cover the costs of going out of the loan. Expenditure on premiums is deductible on the tax return.

This is because the mortgage company has raised money for your loan by selling bonds. 

money loan

The Consumer Council, in collaboration with the Credit Union’s Association, has prepared a brochure with information on fixed-rate loans, which is distributed to interested parties. Remember to ask for this brochure if you are considering fixed rate mortgage loans.

Related Posts:

  1. Choosing Fixed or floating interest rates? – It is a question that is constantly emerging, and that is whether one should choose …
  2. Fixed or floating interest rates? Therefore, you should choose a fixed interest rate – You should certainly be skeptical that it will pay off in the long run …
  3. Floating or Variable Rate Loans – Floating Rate or Variable Rate: A variable rate is a rate moving up …
About

No Comments

Leave a Comment