Interest rates on the money market are rising slowly but steadily.
The 12-month Euribor is already close to two percent, marking a new 52-week high. A further significant increase in interest rates is foreseeable. Now is a good time to convert variable rate loans into fixed rate loans.
For the past two years, borrowers have benefited from variable interest rates on historically low interest rates, which had been significantly impacted by the central bank. The decision for a variable loan was retrospectively correct. Anyone who has opted for a variable loan, however, can now easily switch around and subsequently agree on a fixed interest rate.
Interest rates on the money market are much faster than those on the bond market.
Money is traded on the money market for a maximum of 12 months. Recently, interest rates had risen, among other things due to the expectation of a key interest rate increase by the FEG. The central bank will probably raise interest rates in April. Two to three further interest rate increases could follow later in the year.
A fixed interest rate can be agreed at any time. According to the MHG Building Index, borrowers pay an average interest rate of 3.63 percent pa for 5 years of interest rate security. At 10 years, therefore, 4.09 and at 15 years 4.56 per cent annually.
Those who opt for a fixed interest rate exchange security for flexibility. That makes sense when rising interest rates are expected. Loans with fixed interest can not be terminated at any time, unlike loans with variable interest rates. A cancellation is in principle only for legitimate interest and against a precautionary compensation possible. If canceled without legitimate interest, the compensation is very high. Only after the expiry of 10 years is a cancellation free of charge.
Banks frequently offer loans with the option of special payments. It does not always have to be a good deal, because the extra flexibility is paid with a premium on the interest rate. If there is a larger special payment in the foreseeable future, the variable loan can only be exchanged for a corresponding share in a loan with fixed interest.