The Kirsbank’s shock reduction to the record-low zero interest rate has created many private-economic concerns among Swedes – not least whether it is time to fix the loan rate now or not. In addition, KLOP has shocked its five-year interest rate for a limited period, and their fixed interest rate is now lower than the floating rate. This is an unusual scenario that the five-year interest rate is below the variable and therefore many people think that it is a gold position to lock the cost of housing. Is it time to fix your loan interest rate now? There are no easy answers, but in today’s post you will get answers to some common questions to guide you in your decision. ocnw.org has details
Am I profiting from setting my borrowing rate?
Historically, households have almost always benefited from choosing variable interest rates. The reason for this is because when you lock your loan interest you pay extra for the bank’s possible error assessments. The bank thus charges a slightly higher interest rate to compensate for the risk of doing a loss transaction. The fact that KLOP now lowers its five-year interest rate means that they expect a continued low repo rate from the Kirsbank. In addition, the Governor of the Kirsbank Stefan Ingves has concluded that it is not unlikely that the Kirsbank could introduce a negative repo rate. Thus, it is not certain that you will earn from fixing your loan interest rate, but you will never get the answer until afterwards.
Are there any other benefits of fixing your loan interest rate?
Regardless of whether you profit from setting your loan interest rate or not, it can feel reassuring to lock the loans as you know in advance what the interest cost will be. Then you can calculate in advance how much you will have to move with each month and avoid shock increases (or reductions) of interest rates. In this way, you can see it as insurance to fix the loan interest rate, where the bank’s margins are the premium for the insurance. Right now it is unusually cheap to fix the loan interest rate and therefore you can see it as a favorable insurance policy to lock in the loans right now. If you have small financial margins, it may be a good idea to take the interest rate now that the five-year interest rate is record low. If you value collateral, it may also be a good idea to fix the loan rate. However, if you have high financial margins, the benefits of locking the loans may not be as important. Whether you choose to bind or not, don’t forget that you should always negotiate with your bank on your interest rate.
What should I think about now when interest rates are so low?
Sooner or later, when inflation has picked up again, the repo rate will rise again. It is therefore important that you take this into account and prepare for times of higher interest rates. Whether you decide to fix the interest rate or not, this is a great opportunity to take advantage of repaying the home. When the debt on the home decreases, you become less sensitive to future interest rate hikes. In addition, you get used to a higher monthly cost and a rate hike does not hit as hard on the economy. If you do not want to repay, or if you do not have a savings buffer, this can be a good opportunity to build up a savings capital instead. It is important to have a savings buffer in order to cope with unforeseen expenses. In addition, a good savings buffer gives you a sense of security and financial confidence.