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Fixed interest rates for mortgage lending - what is the optimal term?

Fixed interest rate in mortgage lending

Should you opt for a short or long bond period for mortgage lending? The fact is that the right decision about the term of the fixed interest rate for mortgage lending depends on the conditions at the time of the conclusion of the contract. The fixed interest rate allows you to control costs and when you sign the contract you know how much interest you will pay to the bank in the agreed period. That has both advantages and disadvantages. You can find out what you should know about this in this article.

What is the fixed interest period?

When the fixed interest period is mentioned in mortgage lending, it is the period in which the market and its changes do not affect your interest payments to the lender. This means that neither a rising nor a falling interest rate will have an impact on the costs of your mortgage lending. Accordingly, most bank customers are currently interested in keeping the fixed interest period for mortgage lending as long as possible and avoiding the risk of a possible increase. But before you sign a contract with a fixed interest period of 20 years, the fixed interest rate applies to mortgage lending even if the borrowing interest continues to fall and fall under your current agreement. In the case of short-term loans , this period hardly plays a role. But with loans over a long period of time, fixed interest rates are an important part of the contract.

Which term should you choose for the fixed interest rate period?

There is no general recommendation for a short or long term. Because the right decision is based on the current interest rate that is offered to you at the time the contract is concluded. Building interest rates have been at a record low for several years. It seems plausible that a further interest rate cut can practically be ruled out, as otherwise the interest rate will almost slip into the minus range. It is therefore currently worthwhile to fix the fixed interest rate for your home loan for as long as possible. If you finance a larger sum or extend the repayment over a long period of time in favor of your financial freedom, you can definitely opt for a fixed interest rate of 30 years. However, you should keep in mind that the borrowing rate will increase. For example, if you only agree to a fixed interest rate of five years, you can get a borrowing rate and an APR of less than 0.5 percent with the right offer. Extend the fixed interest rate for mortgage lending in the same offer to 30 years, pay 1.11 percent borrowing interest and 1.13 percent APR.

The fact is: you can save with a short fixed interest rate. However, this only makes sense if you can take out a lower loan amount and ensure repayment in the agreed period.

Advantages and disadvantages of short and long fixed interest rates

Short term of fixed interest rate

benefits disadvantage
low borrowing rate Interest rate risk (depending on the interest rate)
low monthly rate high residual debt, which may then have to be financed with higher interest rates (depending on the interest rate)
Possibility of cheap follow-up financing (depending on the interest rate)

Long term of the fixed interest rate

benefits disadvantage
Planning security through long fixed interest rates higher borrowing rate
low residual debt after the fixed interest rate has expired higher monthly rate

Our tip: You should opt for a short fixed interest rate, where the interest rate is very high and you can expect falling interest rates in the future. Since the interest rate is currently very low, we recommend that you choose a long term for the fixed interest rate. This enables you to minimize the risk of interest rate changes.

The best thing to do is to have two offers drawn up before you sign the contract - one with a long, one with a short fixed interest rate. In this way you have the possibility of a direct comparison and can work out for yourself which variant of fixed interest rates for mortgage lending has the most advantages in your case.

Can you terminate your loan despite the fixed period?

You have opted for a fixed interest rate of 20, 25 or 30 years due to the higher security. But now you have the option to redeem the loan beforehand or to avail of cheaper financing. If you have already paid off the liabilities at your bank for 10 years, you can terminate your mortgage loan despite the agreed fixed interest rate and after a period of 6 months transfer your debt to the cheaper offer. Pay attention to what agreements have been made in your loan agreement with regard to early repayment penalties . In many cases you can get without a prepayment penalty from the fixed interest rate of mortgage lending and so the better, newly arising option for real estate financing use. If the mortgage is still "fresh", this possibility does not exist without the risk of immense costs that you have to pay the bank for lost interest.

It is essential to choose fixed interest rates for mortgage lending carefully!

In the financing discussion with your bank, the question automatically arises as to which fixed period for the debit interest is in your interest. You have a huge advantage if you have prepared yourself for this question and researched the current facts before the interview. Because there is no general recommendation as to whether a long or short fixed interest rate is optimal. It is important that you refer to the current facts and carefully set your fixed interest rate period. We currently recommend that you choose a construction loan with a long fixed interest rate, as the interest rate is currently very low.

My name is Quang Lam and I work at Hegner Möller GmbH as Marketing Director. I am very interested in finance and sports. In my free time I like to go running and I also run a running blog. For the Best Credit blog I only write about topics that really interest me.