How long should the fixed-rate period be?
The fixed-rate period determines how long the interest rate on your mortgage will remain unchanged. Terms of 5, 10, 15 or 20 years are common. Some banks also offer fixed-rate periods of 25 or 30 years.
Short or long fixed-rate period?
A longer fixed-rate period offers you planning security. With a traditional annuity mortgage, the monthly repayment remains constant over the agreed period, provided the repayment instalment rate remains unchanged. However, longer fixed-rate periods are often associated with slightly higher interest rates.
A shorter fixed-rate period may offer more favourable terms, depending on market conditions. However, there is a risk that interest rates will rise by the time your mortgage is renewed, thereby increasing your monthly payments.
Statutory right of termination after ten years
With a fixed-rate period of more than ten years, you benefit from a statutory right of termination. Ten years after the loan has been paid out in full, you can terminate the loan with six months’ notice without incurring an early repayment penalty.
This allows you to combine long-term interest rate security with the option to restructure your financing should market conditions change.
What factors are important when making a decision?
The right fixed-rate period depends on your personal and financial situation. The following questions are particularly important:
- How much is the outstanding balance likely to be at the end of the fixed-rate period?
- To what extent would a higher follow-on interest rate put a strain on your monthly budget?
- Are you planning to sell the property in a few years’ time?
- Do you expect to make any significant unscheduled repayments, for example from an inheritance?
The higher the expected remaining debt and the tighter your financial leeway, the more sensible a longer fixed-rate period may be.
RIEDEL Finance helps you compare different loan terms and financing conditions. This enables you to find a solution that suits your financial circumstances and your long-term plans.
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