Mortgage interest rates have been rising sharply since the beginning of this year. It differs per situation and mortgage provider, but roughly speaking, the interest rate is now 1.5 percentage points higher than in January. Anyone who already has a mortgage will not notice anything as long as the interest is still fixed. But what happens if you have to fix the interest again after a while? Are you not going to pay much more, so that you get into financial problems? It may be wise to do something now.
The easiest solution is to pay off the mortgage. Then you won’t have any problems with the high interest later on. Repaying is a fun project that gives satisfaction and peace. You finally get rid of the fixed costs and the bank. Mortgage free, that feels good. But not everyone can. Or you have other priorities, such as making your home more sustainable to reduce energy costs.
Another option is to refinance the mortgage. You then break the contract with the bank with which you have agreed a fixed interest rate. Suppose the interest is fixed for another three years at 2.5 percent per year. You can choose to fix the interest rate for twenty years at 3.5%. You will then be more expensive in the coming years, but you will then have the certainty that the mortgage will not become a problem in the long term.
How do you handle something like that? You call the bank and ask how high the penalty interest will be if you want to transfer. That can be great. The mortgage lender will look at how long the interest is still fixed with you and what the current interest is that they charge for that period. With a remaining interest period of three years, that is about 2.5 percent per year. If that is about the same as what you pay now, the bank will not miss out on money by transferring and you will not pay a fine.
This is a real example. Due to the rising mortgage interest, the penalty interest on refinancing is now a lot lower than a few months ago. And short-term rates of one to five years are now relatively expensive, while long-term interest rates of twenty to thirty years are historically still cheap. You can make good use of that.
Is this a trick to outsmart the bank? You can’t say that, because you don’t know what will happen to interest rates in the future. If the interest rate continues to rise, then transferring to a longer term is a golden option. If interest rates go down, you will regret it later. You are then still stuck with that 3.5 percent per year for a long time.
Anyone who can afford a considerably higher interest rate, or who are already gradually paying off the mortgage, can choose to do nothing. The comfort of waiting is that you won’t regret it later. You just had bad luck. And yet: you learn more from mistakes than from opportunities you miss.
Reinout van der Heijden is editor-in-chief of the Geldgids. Have a question yourself? Money [email protected]