Are you considering getting rid of the interest rate adjustment loan? – Real Council
Then you are not the only one, because traffic has recently gone down that road. Homeowners want a fixed interest rate at the very low level that we are experiencing now. Five years ago, 60% of new mortgages were for private homes with variable interest rates. Today the share has dropped to 35%.
One of the reasons for the shift may be that the performance difference is not as great as before.
Rising interest rates on interest rate adjustment loans have made them significantly more expensive than fixed rate loans.
However, the interest rate on fixed-rate loans is higher than the variable interest rate, so the benefit is expected to increase.
How much will we show in the following with examples of a debt of USD 2,500,000 and 80% mortgaging of the property value and 25 years residual maturity:
The cost of conversion to fixed interest is USD 28,000 and the price of the new loan is 99.30.
The redemption price is 100. The contribution rate is according to customers’ crowns in Totalkredit.
If you compare the F5 loan with a new fixed-rate loan, the net benefit increases by USD 633 per share. month and it is not a high price to get a fixed interest rate throughout the loan term? But when the increase is not greater, it is also because the installment decreases by as much as USD 4,750 per month. month. This corresponds to USD 57,000 the first year.
And it is probably the combination of a rising net benefit and a simultaneously declining installment, which means that some homeowners still hold on to the variable interest rate. But they must remember that as interest rates rise:
- then interest rate adjustment loans also rise, and the installment decreases
- then the market value of the debt falls on fixed-rate loans, while the benefit is unchanged.
Especially the latter is important, as a falling market value can offset the smaller repayments when the debt has to be repaid ahead of time. For example, If the loan is repaid USD 57,000 less on the fixed-rate loan after one year, the price of the bonds should only fall by 2.3 points. This corresponds to a rise in interest rates by approx. 0.33%.
The Real Council model can be used to limit the increase in the net benefit and the decrease in the installment.
The Real Council model provides very flexible financing. It basically involves taking out a fixed-rate mortgage loan with repayment and financing the repayment over a mortgage that is linked. You can take advantage of the opportunity to finance the repayment as you wish and when you want it, so the opportunity goes from full repayment to full repayment.
You can therefore choose to take out a 20-year mortgage and partially finance the repayment, but in turn save on the interest rate because it is approx. 0.5% lower than on a 30-year loan. If you choose this model and pay the same net benefit as on a 25-year loan, the debt repayment will increase by USD 746 per share. month compared to the loan with 25 years settlement.
And you can go ahead and utilize the Real Council model so that the benefit will be the same as on the variable rate loan. For example, pay the same net benefit as on the F5 loan, the “just” installment will fall to USD 7,017 per month. month. Thus, USD 1,518 less.
On the other hand, you now have the opportunity to convert the loan if interest rates rise.
However, the price of choosing the lower interest rate on a 20-year loan is that the price sensitivity is a little less.
Where the rate falls by an estimated 8-9 points on a 30-year loan, when interest rates rise by 1%, it falls by approx. 6 points on a 20-year loan.
However, if the debt is 2,500,000, the market value will decrease by USD 150,000. This corresponds to almost 1.5 years of repayment on an F5 loan.
If you are considering changing your interest rate loan with a fixed interest rate, please contact us so we can calculate the consequences for you. It does not cost anything.