Are mixed mortgages a good alternative or is there a catch?

Key change.

Thomas Osborne
Thomas Osborne
18 February 2023 Saturday 22:40
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Are mixed mortgages a good alternative or is there a catch?

Key change. Mixed mortgages have agreed to banks and customers: both parties consider them attractive. In the case of entities, because their interest is not fixed throughout the term, which allows them to benefit from increases in the Euribor that may occur in the future. And in the case of the applicants, because with these products they ensure that they pay stable and affordable installments during the first years of the term.

It is not surprising that in recent months the supply and demand for mixed mortgages has increased. But are these products really convenient? Or is there a catch? According to the financial comparator HelpMyCash.com, getting a mixed-rate mortgage has its advantages, but also certain drawbacks that must be considered before opting for this option.

To correctly assess these products it is important to know their characteristics. By definition, a mixed mortgage has a fixed interest during the first years, but after that initial term, which is usually between five and 15 years (depending on the offer of each bank), the rate becomes variable and can go up or down. go down depending on the oscillations of a reference index, which is practically always the Euribor.

In a context of rising Euribor like the current one, whose value has gone from being negative to exceeding 3% in less than a year, taking out a mixed-rate mortgage is tempting: as the interest will be fixed during the first years, the client will be able to Except for the comings and goings of this index. In addition, it must be taken into account that banks are making their fixed mortgages more expensive, which is why mixed mortgages are positioning themselves more and more as an attractive alternative.

According to HelpMyCash, the average interest on a fixed mortgage is around 3.5%, while the initial fixed rate on a mixed interest loan is, on average, less than 3%. In other words, in general, if a client decides to take a mixed-rate mortgage, during the first years of the term they will pay more affordable installments than if they opted for a fixed interest rate for the entire repayment period.

The case of EVO Banco is very representative. Your Smart Fixed Rate Mortgage has interest from 2.80% for a term of 30 years, which can be obtained in exchange for direct debiting your payroll and taking out your insurance (home and life). On the other hand, your Flexible Smart Mortgage has a fixed interest from 2.45% during the first 15 years and a variable rate from Euribor plus 0.75% for the rest of the term, subsidized for meeting the same requirements as the previous loan.

Mixed mortgages, however, have a great disadvantage compared to fixed ones: their interest is not constant throughout the repayment term. When the initial term ends, the applied rate becomes variable. In other words, the loan installments may change depending on the fluctuations of the Euribor. If this index rises, they will become more expensive, while if it falls, they will become cheaper.

In addition, during this period at a variable rate, the differential offered by banks (which is added to the Euribor to calculate the interest) is usually higher than that of variable mortgages. According to HelpMyCash, the average interest on variable-rate loans is Euribor plus 0.75%, while that of mixed loans in its second tranche is Euribor plus 0.80%. In other words, if the Euribor rises in the medium term, the client will be doubly harmed: the installments will rise and, in addition, a somewhat higher interest rate will be applied than what they would have with a variable mortgage.

A good example of this circumstance is the case of Ibercaja. The Vamos Variable Mortgage of this entity has interest from Euribor plus 0.60% (1.50% fixed the first year), while the interest rate of the Vamos Mixed Mortgage 10 is 2.55% for the first ten years and from Euribor plus 1.10% for the following. In both cases, to get these types you have to pay your payroll and several receipts, use a credit card from the entity, subscribe your home and life insurance and open a systematic contribution plan.

The conclusion of the HelpMyCash analysts is that a mixed mortgage can be useful in a context like the current one, but it does not provide permanent protection against Euribor rises. For this reason, they advise applicants to assess whether they prefer to have stability forever with a fixed mortgage, although paying more during the first years (and perhaps the following ones), or if it is convenient for them to assume the risk that the Euribor remains high within a time.

In the first case, taking out a fixed mortgage may be more convenient, although not at any price. From this comparator they recommend looking for offers with interests of around 3% or less. These are minority, but they still exist within the market. For example, the Fixed Mortgage marketed by BBVA has a rate from 2.90% to 30 years that can be obtained in exchange for direct debiting the payroll and taking out home and life insurance from the bank.

On the other hand, if the client prefers to take certain risks, a mixed mortgage will allow them to pay a more affordable fee during the first years that will not depend on the Euribor. However, in this case, it is recommended that the mortgagee make partial repayments periodically during that initial period. In this way, you can choose between shortening the repayment period so that the variable rate is applied for less time or reducing the amount of the monthly payments so that they rise less in the event that the Euribor rises in the second tranche.