The Annual Effective Annual Rate (APR) is the most important percentage of your loan offer: it concentrates all the charges of a mortgage, namely the operating costs of the bank, the insurance premiums associated with guarantees and the base interest rate. This is why the APR can vary from one establishment to another. This rate can also be fixed or variable …
What is a variable rate?
As the name suggests, the variable rate is a rate that changes over the life of the loan. Contrary to the fixed-rate which allows knowing precisely the amount of the monthly installments, to be supported by the borrower during all the duration of the repayment.
Fluctuating both upwards and downwards, the variable rate is indexed to the Euribor 3-month or 1-year benchmark.
Qualified as the rate closest to the real one, 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 cannot exceed a certain ceiling, defined at the time of signing the contract. Thus with a variable rate “capped +1”, certain 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.
For comparison, the fixed rates offered at least in April 2017 are constructed on the average basis of 1.40 to 1.85%, for a loan over 20 years and from 1.66 to 2.04% over 25 years.
The context does not favor the use of the variable rate!
After having weighed on more than 20% of loan volumes in 2004 and 2005, today, variable rate loans only represent 0.4%. And some establishments do not even offer them anymore.
Indeed, in the context of falling rates, these revisions are not interesting for lending organizations … Taking advantage of this very favorable situation, many borrowers who took out revisable credits were able to carry out fine financial transactions 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-offer these solutions. But this time, it is not interesting for the borrower!
If market trends cannot be predicted, the current situation cannot be expected to indicate a further decline. At best, their evolution can remain minimal, but it still does not represent any interest to prefer it to a fixed, more secure rate.
To find out the rates charged in your region, it is interesting to approach a credit broker, specialist in banks. This expert can even get you the best rate based on your profile.