Interest rate mortgage loan clashes with its limits
February 21, 2020
These are golden times for people who want to take out a mortgage loan. The Belgian long-term interest rate – an important measure of mortgage interest rates – has broken a new depth record this week. What does that mean to you?
The long-term interest rate has broken a new depth record on Wednesday: -0.3 percent. The Belgian long-term interest rate fell below the 0 percent limit for the first time on 3 July. Since then, interest rates have failed to stay above the zero limit for a long period.
Good news for real estate buyers
Whoever wants to buy a home can fully benefit from the current interest rate situation. The lenders rely, among other things, on the long-term interest rate to determine the rate of the home loan. The lower the long-term interest rate, the cheaper the credit. Although many lenders have now reached their limits. They cannot, after all, reduce interest rates endlessly. If lenders lower interest rates too tightly, their traditional earnings model – the conversion of savings into loans – will come under further pressure.
The financial players are free to determine how deeply the mortgage interest rate drops, but at the same time they must respect the absolute lower limit of 0.11 percent for the regulated savings accounts. The smaller the difference between the savings interest rate and the mortgage interest rate, the smaller the profit margins for the financial players. The chance is therefore very small that the lenders will cut even deeper into the rates.
Less borrowing, lower interest
There are nevertheless a number of ways to ensure that interest rates fall further. Lenders must create additional capital buffers if they provide risky loans. This is the case, for example, when someone borrows more than 80 percent of the market value of the home. That is the so-called quota. The Best Bank has also decided that the entire Belgian financial sector must build up an additional buffer of 1 billion dollars in the third quarter of this year.
Such measures ensure that the banks want to push their customers towards a lower share. They do this by, among other things, drastically reducing rates when someone borrows less than 80 percent of the market value of their home. We see one of the most striking tariff changes at KBC. Those who opt for a share lower than 80 percent will pay 1 percentage point less with the large bank than those who borrow more.
In other words, you can close great deals if you are prepared to put more money on the table at the start of your real estate project. Read more about it here.
Consider a variable interest rate
More and more people are opting for variable interest, figures from the market leader Cream Bank teach. During the first five months of this year, 54 percent of Belgians opted for a variable interest rate. Last year it was 31 percent. In 2017, only 15 percent of customers opted for a variable interest rate.
A variable interest rate is lower than the fixed interest rate at the start of the contract. The banks are in fact in favor of that formula. Thanks to the variable interest rate, the customer assumes a large part of the risk when the interest rate rises. With a fixed interest rate, the risks are entirely for the account of the bank. In that case they cannot adjust the rate upwards if the market interest rate rises.
If the market interest rate is falling, then you take advantage again if you have opted for a variable interest rate. In that case you will see the price tag of your mortgage loan fall. Those who have opted for a fixed interest rate can have their mortgage loan revised in such situations. In that case you have to pay a reinvestment fee. That may amount to a maximum of 500 dollars.
In addition, a variable interest rate may be doubled during the term of your contract. For example, those who receive a variable interest rate of 1.5 percent will see the interest rate rise to 3 percent in the worst case. Take this into account when comparing a variable interest rate with a fixed interest rate.
The banks also determine a ‘cap’ at the start of your contract. This ‘cap’ determines how robust the interest rate can change with each adjustment. When the bank can change the interest, it is also contractually laid down. This can be, for example, annually, five-year or ten-year.
A customized mortgage loan
Lenders Bank does everything to make comparing financial products as simple as possible. We also want to do that for the mortgage loans. That is why we launched a new comparator last month. Thanks to that comparator you will immediately know how much your project will cost you in total. In addition, you can see at which banks you are eligible for a housing loan and what rate you get.
We have a personalized rate for 18 of the 33 players from our comparison. Discover here at which lender you get the cheapest mortgage loan.