One of the questions that those who want to take out a mortgage ask themselves is what type of interest to choose: fixed or variable.

Loans with a fixed interest rate protect you from interest rate fluctuations (especially during periods of their growth, as happened last year), but according to HotNews calculations, the final amount you give to the bank is higher than if you took a loan with a variable interest rate.

On the other hand, variable rate loans have the advantage that during periods when interest rates are low, you pay a lower rate than your neighbor who took out a fixed rate loan.

Daniel Popescu, Patra Pereti: Choose a fixed rate mortgage in the early years only when we are going through an economic cycle with rising interest rates

Before making a final decision, it is important to understand that there is no universally correct answer when it comes to choosing the type of mortgage. Sometimes it is more efficient to get a mortgage loan with a fixed rate in the first years. Sometimes it is more efficient to choose a mortgage loan with variable interest rates, writes Daniel Popescu on Patrupereți.ro

The ultimate answer depends, he adds, on the economic cycle we’re in. For 20 years, the economy has gone through various cycles of rising and falling interest rates.

By default, this means that over the course of a 30-year mortgage, you will inevitably experience periods of low interest rates as well as periods of high interest rates. Sometimes the boom and bust periods will be longer, sometimes shorter.

From this point of view, it doesn’t really matter when you apply for a mortgage for such a long term, as you will have periods when rates are low, but also periods when rates will be high.

• only choose a fixed rate mortgage in the early years when we are going through an economic cycle with rising interest rates, as this way you will be paying fixed rates despite rising interest rates in the current period;

• avoid choosing a fixed interest rate for 10 years, as it is statistically unlikely that there will be such a long period of interest rate increases. As a rule, periods of growth, stagnation and decline replace each other with shorter intervals, about 5 years;

• choose a variable rate mortgage if we are going through an economic cycle with declining interest rates, because this means that the interest on the loan will decrease in the early years before the new economic cycle of growth;

Denescu, Executive President of ARB: In the medium and long term, the economy is unpredictable and credit costs are constantly being formed in banks

I, the representative of the Association of Romanian Banks, try to make things as simple as possible. I know how we view this subject because I remain committed to the conclusion that the difference between perception and reality would be as small as possible.

There is a natural, human, logical expectation of non-economists that you have complete predictability in the economy when you take out a loan for 30, 25 or 15 years, which is logical. It must be remembered that in such a medium- and long-term perspective, the economy is actually unpredictable, and lending costs are constantly being formed in banks. In summary, it is very difficult to establish a stable, predictable price in an unpredictable economy over the long term.

This is why variable interest rates exist. And then this logical, normal and natural dilemma arises. Which is better: fixed interest or variable interest? Fixed interest, calculated by a professional, takes into account interest rate fluctuations. The level of unpredictability in the long run tries to capture it in the price. In summary, the fixed rate may be higher in the future when interest rates calm down.

In conclusion, this is the dilemma of natural selection in such an unpredictable economy as we see today: we are in the middle of a war, Florin Danescu explained at a conference organized by Finmedia.

BNR: Large share of variable rate loans carries significant interest rate risk and remains a cause for concern in the near term

The large share of variable rate loans carries significant interest rate risk and remains a cause for concern in the near term, particularly in the case of mortgage loans, the BNR’s stability report said. On the one hand, borrowers whose loans were granted with a variable interest rate of 3 months ROBOR are more vulnerable to interest rate increases compared to those whose interest rates are calculated on the basis of IRCC, given the fact that the former register a significant degree of indebtedness. have increased compared to loans granted by MKRP after the implementation of the measure to limit the degree of indebtedness (01.01.2019).

On the other hand, borrowers with a standard mortgage at an interest rate calculated on the basis of IRCC have a larger share in the system, the Report also shows

“From the latest estimates, you can observe a reduction in the credit cycle, and this is normal, because debtors suffer from two sides. On the one hand, high inflation, which affects disposable incomes, and at the same time leads to higher interest rates. Note that mortgage loans were mostly concluded with a variable interest rate, which automatically increases the risks compared to the other option.

But it is to some extent understandable because there was a period, a long period, when interest rates were lowered and the climate was very stable, and it is normal that borrowers preferred the variable interest level because of the lower costs,” said Alexi Alupai, chief expert of the Authority stability of the BNR at the Finmedia conference.

Florian Libokor, Chief Economist BRD: Each type of interest has its own advantage, depending on the context. I’ll be honest with you, I’m a fan of variable interest rates

We are talking about variable interest rates versus fixed interest rates. Each has its own advantages, variable and constant depending on the context. I’m frankly a fan of floating rate because with floating rate you are always “marked to market” so to speak. You benefit from both profit and loss, assuming you accept or are a stickler for fixed interest.

You have to tell yourself the problem, otherwise at some point you will find yourself in a situation where you are stuck somewhere, too high or too low. Of course, this will have a negative impact on your budget because you will not be able to get out of this situation because you did not adopt a business strategy based on a fixed interest rate.

I’m speaking in general terms, but I’m not implying that fixed rates are things or instruments that should be avoided. For example, last year there was one case that contradicts me. This year, those who borrowed at a fixed interest rate at the beginning of last year became the lucky ones. This is reality.

Here I would also like to emphasize that there are no perfect thoughts, even in my opinion. I don’t think I’ve ever had a superior opinion. I had opinions that I supported with the arguments I had. They were never incompetent, uncriticized, Libokor admits. Economists can have their opinions about interest rates, about European funds, about what you want. But definitely no one will have the best opinion. Together, they will probably form it. Therefore, my advice is to listen to everyone.

What HotNews calculations show: For a €45,000 loan taken out over 20 years, those with a fixed rate end up paying around €5,000 more

With a mortgage loan with a fixed interest rate, even if you are protected from rate fluctuations in the first years, the amount you pay the bank at the end will be higher than in the case of a loan with a variable interest rate, according to calculations made by HotNews.ro.

In the end, it all depends on the willingness to take risks. Do you want a fixed (stable) rate for several years? There’s a cost to everything: you’ll have a slightly higher monthly rate if you opt for a variable rate loan, but you’ll be protected from interest rate rises as the BNR tries to tame inflation. Also, when BNR pays back interest, your rate will remain fixed, while those on a variable rate will pay a lower rate. In addition, you will pay more for the home than if you took it with variable interest.

Hotnews took into account a house worth 265,000 lei (approximately 53,000 euros), a loan cost of 225,000 lei, money borrowed for 20 years.

In the case of a loan with fixed interest during the first years and then with variable interest, the first monthly payment is approximately 1,691 lei, and the final amount you will pay the bank will be 347,707 lei.

In the case of a loan with variable interest, the first installment will be 1,453 lei, and the total amount paid at the end of 20 years will be 323,127 lei.