Main characteristics and differences of fixed and mixed mortgages
A mixed mortgage loan (mixed mortgage) combines the operation of both a fixed rate mortgage loan (fixed mortgage) and a variable rate mortgage (variable mortgage). When valuing the benefits of hiring a mixed or fixed mortgage, it is convenient to analyze three factors mainly: interest rate, term, and installment.
Type of interest
A fixed mortgage always has the same interest rate, it does not change over the term of the loan. In this way, it is ensured that the quota to pay will remain unchanged, even if market rates go up or down.
In a mixed mortgage during the first years, a fixed rate is applied. During the rest of the term, it works as a variable mortgage, the interest rate will be composed of a fixed spread plus a reference index (usually the Euribor). This makes the quota to pay rise or fall depending on how the reference index oscillates. That is to say that, in practice, we are facing a variable mortgage with special conditions during its first years.
Fixed mortgages are usually contracted for a shorter repayment period than mixed or variable mortgages.
A mixed or variable mortgage allows greater flexibility since financial institutions usually offer a longer repayment term to pay the loan.
In a fixed mortgage, the same installment is always paid throughout the life of the loan. The amount does not go up or down, the fee that is set initially will be the one that applies every month.
In a mixed mortgage, the same fee is paid during the first years, during the time in which the loan functions as a fixed mortgage. During the rest of the term, the mortgage will be variable and the quota will depend on the value of a reference index (Euribor). In this period, the most normal thing is that every six months, the interest rate of the mortgage is updated taking into account the Euribor.
In mixed mortgages, financial institutions tend to offer a higher rate during the first years of the loan and more competitive during the rest of the term, which usually means that the installments to be amortized are higher at the beginning that during the years that it works variable type.