Fixed or variable rate mortgage? Since both types of rates boast both advantages and disadvantages, the mixed rate mortgage represents an excellent compromise, a hybrid model to be carefully evaluated. How does it work and when is it convenient to take out a mortgage to buy a house with a mixed rate? Let’s find out in this dedicated guide.
Mixed rate mortgage: how does it work?
Mixed rate mortgages are a hybrid between the fixed rate and the variable. The instant subject has the possibility, at preset times, to change the choice of the type of rate from variable to fixed and vice versa.
This is an additional option for the borrower: it allows a better weighting of the contractual conditions as rates and market evolve.
This type of mortgage allows you to adapt your mortgage to the economic needs of your household over time. Although it is considered to be more expensive in terms of spreads of around 10-20 basis points compared to the variable rate, in certain cases, mixed-rate mortgages represent a convenient solution .
When is it convenient to turn on the mixed rate mortgage?
The mixed rate mortgage can be convenient if it offers the possibility to change the rate in one or more moments that can be freely chosen by the borrower. Furthermore, this solution can be convenient for those who are inclined to choose a fixed-rate mortgage even when the values of the credit score indices are very high.
As mentioned, the borrower can decide to switch from the fixed or variable rate or vice versa, without requesting a renegotiation of the loan, protecting himself from any rate fluctuations.
It should be remembered that the transition from one type of rate to another involves expenses , which depend on the value of the spreads.
For whom is it worthwhile to take out a mixed rate mortgage?
This type of loan is suitable for all those who are in an unstable financial condition and need to adapt to the macroeconomic conditions that have arisen.
In fact, it can be a “smart” solution for those who are valid experts in the financial sector and can predict market trends, taking advantage of the opportunity to save.