Financial Dictionary - Variable-rate mortgage.
How is the interest rate set on a variable-rate mortgage?
In variable-rate mortgage loans, the interest rate is calculated based on the Euribor, which acts as a benchmark index and causes the monthly payment to vary depending on its fluctuations and its value at the time of each review.
Typically, the interest is reviewed every six months or every twelve months. The review period is specified in the mortgage loan agreement.
The interest rate for variable-rate mortgages is usually lower than that offered for fixed-rate mortgages.
What is the repayment term for variable-rate mortgage loans?
The maximum repayment term established for variable-rate mortgages is usually higher compared to that offered in fixed-rate mortgages. By increasing the repayment term of the loan, the amount that is paid in each monthly payment is usually less if we compare it to a fixed-rate mortgage. Here though, it is important to take into account that depending on the value of the Euribor at the time of the mortgage review, this amount can vary and even exceed that established in fixed-rate mortgages.
Is there any variation in the monthly payment of a fixed-rate mortgage?
In fixed-rate mortgage loans, the monthly payment will vary after each mortgage review. This information must be included in the loan agreement and usually takes place every 6 or 12 months. The monthly amount will go up or down depending on the value of the Euribor at the time of the review.
If the Euribor goes up, the monthly amount will be higher and if the Euribor goes down, the monthly amount will also be lower.