Once you have learned all the theory, now it is your turn to practice: find a mortgage that has the lowest interest rate possible (or negotiate to have it lowered). Taking into account the current trend in the mortgage market, this task can be complicated, since the banks are beginning to raise their interest rates and everything indicates that they will increase them more in the future.
Since our goal is for you to pay as little as possible for your mortgage loan, here are some tips that will help you find the cheapest mortgages and negotiate to lower your interest even more:
Check our ranking of cheap mortgages to find out which banks apply the lowest interest rates. This way you will get an idea of ​​what is offered in the market and you can use it as a basis to negotiate with all the entities with which you contact.
Use our mortgage comparator to compare all those offers that seem interesting to you. It is important that you do not look only at the interest: there are other expenses such as insurance or commissions that also affect the price of the credit.
Consider hiring a mortgage broker. The job of this professional is, precisely, to get you a mortgage with a lower interest rate than what they would offer you if you went to the bank on your own. In addition, you do not lose anything by hiring their services. On the one hand, there are free brokers that will present you with the best offers without charging you a single euro. In case you need the more personalized support of a professional, with plenty of experience negotiating the best interests, you will have to pay his fees, but ONLY if you sign the mortgage that he gets you, never before.
Evolution of the rates applied on mortgages until 2022
To know if they offer you a good interest, it may be useful to know what the rates are that apply right now and how they have evolved over the last few years. Here you will find a timeline of how mortgage interest rates have changed since 2016, when the Euribor first traded below 0%:
- Year 2016: interest rates begin to fall. After many years of rates around 3% or 4%, mortgage interest is beginning to fall due to the negative value of the Euribor and the reduction in fixed rates. Variable rates of around the Euribor plus 1.25% and fixed rates of around 2.50% are offered.
- Year 2017: stagnation of interest. The banks stop the reductions carried out the previous year, but choose not to raise their rates.
- Year 2018: reductions in variable and fixed mortgages. Due to the greater competition in the mortgage market, banks reduce the spreads of their variable mortgages (which is added to the Euribor to calculate the interest) and place them around 1%. They also lower their fixed mortgages, whose interest begins to fall below 2%.
- Year 2019: war of fixed mortgages and rise in rates in the variables. A new drop in the Euribor leads entities to reduce their fixed rates, which stand at an average of 1.90%. The differentials of their variable mortgages also rise to compensate for the decrease in the Euribor, which places the variable rates at an average of around 1.10%.
- Years 2020 and 2021: drop in Euribor and interest. The drop in the Euribor to its historical lows, added to the bank’s intention to recover the activity lost during the hardest months of the covid-19 pandemic, lowered fixed rates to less than 1.50% and placed variable rates at an average Euribor plus 1%.
- Year 2022: the Euribor skyrockets. Rumors of a possible rise in rates by the European Central Bank, finally carried out in July, September and October 2022 (from 0% to 2%), trigger the price of the Euribor, which is on positive ground and is already at more than 2.5%. The banks react by making their fixed rates more expensive, which are already above 3% in many cases, and lowering the spreads of their variable mortgages to an average of 0.80% to encourage their contracting.
Why do interest rates go up or down?
Now you know what interest is, but how do banks decide what rate to apply to their mortgages? We explain it to you below:
Because of the risk assumed by the bank
In finance there is a golden rule: the higher the risk, the higher the profit. Banks also take advantage of this rule to define what interest rate they apply on their mortgage loans.
If you are a very solvent person, the risk of non-payment that the bank assumes for lending you its money is very low. Therefore, a low interest will apply to you. On the other hand, if your economic situation is somewhat delicate, the danger that you will not pay the installments will be higher, so you will have to settle for a higher rate.
Due to competitive pressure
If it were up to the banks, they would always charge you high interest, because that way they would earn more money (even if you are solvent). But the entities have to compete with each other to attract you and contract the mortgage with them. For this reason, when there are banks with a more aggressive commercial strategy, the interest rates they offer tend to go down.
Due to the evolution of the Euribor
Another aspect that influences interest is the Euribor. This is a reference index that is used to calculate the interest of variable mortgages. When the Euribor rises, the variable rates also increase, while when it falls, the variable rates are reduced.
The interest on fixed mortgages also depends, in part, on what the Euribor does. When the Euribor falls and makes variable mortgages cheaper, banks try to encourage the contracting of fixed mortgages and lower them, because the interest on these products is somewhat higher than that of the variables. On the other hand, when the Euribor rises (as it happens now), they reduce the differentials of their variable mortgages to make them more attractive and make the fixed ones more expensive.
