Some formulas combine fixed and revisable rates. Over the first ten years the rate is fixed and then goes into revisable. Loans are shorter and therefore cheaper, which also reduces the cost of insurance.
They combine two loans. A twenty-year loan, for example, will consist of one loan over ten years and another over twenty years. This arrangement reduces the overall cost (the shorter the loan, the lower the interest and the cheaper the insurance).
Namely: better to choose a fixed rate loan. They are safe and remain very close to their historic lows. Revisables, which have also fallen, can only go up sooner or later (some banks have taken them out of their offer and they only account for 0.1% of home loan production at the start of 2020. Using the Mlcalc Calculator happens to be essential here.
Choose flexible and reportable monthly payments
Mortgage loans are now much more flexible. The monthly payments can adapt to the evolution of your financial situation whatever the type of loan (fixed, revisable, mixed). By adjusting your repayments, you may face temporary financial difficulties. And if your income increases, you can shorten the term or reduce your deadlines.
Modular monthly payments
Once a year, you can adjust your monthly payment up or down. All banks cap modulations at 10, 20, or even 30% of the maturity. A downward modulation leads to an extension of the repayment period, but it allows you to cope with a temporary decrease in your income.
The carry-over monthly payments
You can postpone one or more monthly payments at the end of the loan. This possibility is only open a limited number of times during the term of the loan. Some banks offer the option of suspending payment for six months to a year. You can thus assume unforeseen expenses while continuing to repay your mortgage.
Namely: check whether your mortgage has flexible or deferral monthly payments. And ask the bank how much these flexibilities cost.
Set the right repayment period
If you extend the term, you borrow more with the same monthly payment. For € 1,000 per month, you borrow € 165,864 at 1.10% excluding insurance over fifteen years and you pay € 14,136 in interest. With the same maturity, but at 1.55% over twenty-five years, the loan reached € 248,577 and interest € 51,423 (interest rate conditions in mid-June 2019).
A reasonable debt capacity
Another advantage of long durations: with equivalent borrowed capital, you lower the monthly payment. This makes it easier for you to comply with the 33% debt capacity rule. For a loan of € 150,000 at 1.10% over fifteen years, you repay € 904 each month (interest: € 12,720). You must earn 2,750 € net per month to obtain this loan.
For the same amount borrowed but at 1.55% over twenty-five years, the monthly payment goes down to € 603 (interest: € 30,900). This loan is available to a family earning € 1,850 per month. To choose the right duration according to the amount of interest to be paid, have the banks run simulations.