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Financial Dictionary - Fixed-rate mortgage
Fixed-rate mortgage
In a fixed-rate mortgage loan the interest rate that the bank applies does not depend on any index and remains fixed throughout the loan life, which means that the monthly payment does not vary and remains fixed. Therefore, fluctuations in the Euribor will not affect the monthly payment, which will never vary.
How is the interest rate set on a fixed-rate mortgage?
The interest rate will be set based on the repayment term. The longer the term, the higher the interest rates on the mortgage loan.
When setting the interest to be paid, banks also take into account other factors in relation to other bank products that have been arranged. It is common for banks to offer lower interest rates if the customer has taken out an insurance product, set up a direct debit for their salary or have linked their pension plan, for example.
What is the repayment term for the fixed-rate mortgage loan?
Typically, the maximum terms established for fixed-rate mortgages are lower than the existing terms in the case of variable-rate mortgages.
Is there any variation in the monthly payment of a fixed-rate mortgage loan?
As we have mentioned, the monthly payment remains unchanged throughout the life of the mortgage loan. Because the repayment period is shorter than in the case of variable-rate mortgages, the monthly payment is usually higher. At this point, it is important to point out that although we must bear in mind that the price of variable-rate mortgages fluctuates, it is possible that the monthly payments exceed those of a fixed-rate mortgage.