¿Fixed, variable or endowment mortgage?
In order to choose one of the three financing options, the first thing is to define each of them and list the advantages and disadvantages.
Fixed mortgages
These are mortgages in which the interest rate remains the same.
Advantages of the fixed mortgage: they provide great stability, as you will not see your mortgage payment increase and you will not be affected by variations in the Euribor as is currently happening.
Fixed mortgages are ideal for people who prefer the stability in their payment schedule, avoiding fluctuations or surprises.
The disadvantage of this type of mortgage is that, in the long run, if the Euribor falls or stabilises, you will pay more interest than in variable or endowment mortgages.
Variable Mortgages
These are mortgages in which the interest rate is made up of the index (normally the Euribor) and a differential.
The advantage in this type of mortgage is that in the event of a possible stabilization or drop in the Euribor, in the long run you will pay less interest than in a fixed or endowment rate mortgage.
This mortgage is designed for riskier customer profiles who have the certainty or intuition that this index may have a downward trend in the future.
Another advantage is that the differential is lower than in endowment mortgages and the early cancellation fee is also lower than in other mortgages.
The disadvantage of this type of mortgage is the risk assumed and the possibility that rate rises may have a significant effect on our mortgage loan, as is currently happening.
Endowment mortgages
These are mortgages in which the two varieties described above are mixed; normally during the first 5 or 10 years a fixed rate is applied and then it shifts to a variable rate for the remainder of the loan.
These mortgages are ideal for customers with the capacity to save, as they can benefit from the rate in the fixed-rate tranche in order to build this savings and amortise capital for the period in which the variable rate is applied and thus not suffer a possible increase in the monthly instalment.
Another advantage of these mortgages is that in the period in which a fixed rate is applied it is usually lower than in fixed mortgages.
The disadvantage of this type of mortgage is that you cannot choose which tranches are fixed-rate and which are variable-rate.
Another disadvantage is that the differential in the variable interest tranche is usually higher than the differential in a traditional variable mortgage, and that the early cancellation fee is also usually higher than in variable rate mortgages.
Conclusions
It is a difficult decision to make, currently with the uncertainty it may be more advisable to opt for a fixed or endowment mortgage, but this decision will depend on your customer profile and risk tolerance.
