Fixed rates make sense

Borrowers rushing to change terms of mortgages as interest is set to rise significantly

Fixed rates make sense

Borrowers are rushing in droves to change their mortgages to fixed interest rates, as 95% of new mortgages now bear unchanged rates for a period up to 20 years.

The prospect of rate hikes has mobilized borrowers too, mainly those with mortgages that have floating rateswho took out their housing loans after 2004. Kathimerini understands those people are returning to their banks asking for their interest rates to be switched to fixed.

Banks are also bracing for changes to fixed rates ahead of the increase of the benchmark rate of the European Central Bank; some lenders have already made small modifications to their rates, as they realize that their current levels are not sustainable based on the increase of the cost of money.

According to figures from Greek banks, the average fixed interest rate for 10 years is close to 3%, and that for 20 years stands at 3.5%; however, bank officials explain that this level is right on the break-even point, meaning that lenders marginally cover their costs.

Mortgage credit officials say fixed rates constitute a window of opportunity at the moment for those wishing to obtain an interest rate at a particularly low level for a long period, as according to projections the increase has been taken for granted and may reach 1 percentage point by the end of the year.

Borrowers with loans from the past will have to take into account when the loan contract was signed and whether they are close to the time when their outstanding dues will be mainly interest and not the original capital. The transition to a fixed rate can be made without a penalty and borrowers only have to pay a 200-euro handling fee.

Given that during the financial crisis of the 2010s demand for mortgages was minimal, most loans banks currently have in their portfolios were issued between 2002 and 2009, when the interest spreads were low and did not exceed 2%; the shift of the Euribor rate to negative territory offered those borrowers privileged floating rates, but that is not the case anymore.

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