All about interest rates for fixed-rate mortgages

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Fixed-rate mortgages offer the greatest financial security of all types of mortgages. Once the terms of the contract are agreed on, the interest rate of the fixed-rate mortgage remains unaffected by fluctuations in the market. Therefore, mortgage borrowers can stick to a fixed financing plan for years and pay off the loan amount according to their financial possibilities.

Fixed-rate mortgages are particularly attractive during periods of low-interest. If the mortgage was taken out during a low-interest rate phase, the homeowner will benefit from the low-interest rate throughout the entire term of the mortgage. Accordingly, it is less advisable to take out a fixed-rate mortgage in times of high interest rates. The differences between respective offers on the market arise from the bank-specific margins.

Interest rate of fixed rate mortgages

How banks define interest rates for fixed-rate mortgages

The very phrase "high and low-interest rates" is indicative in itself that there are trends in the mortgage market, and banks define their rates based on such trends. The Swiss National Bank has a crucial influence on the level of interest rates through its monetary policy decisions. It can let money flow into the market or withdraw it. This has an influence on the conditions at which short-term loans between banks are completed. If banks receive loans at low-interest rates, they can easily raise new funds, which has a positive impact on the interest rates of fixed-rate mortgages.

The situation in the financial markets is, however, only the framework. Within this framework, banks put a margin on their products, which explains the differences between mortgage offers from different providers. Here are the most important factors that influence rates:

  • Term of the loan
  • Location and type of property
  • Type of use
  • Creditworthiness of the borrower

Mortgages with short terms usually come with lower interest rates than mortgages with long terms. In most cases, the term is between 3 and 10 years, but in exceptional cases it can be up to 25 years. In order to find the optimal mortgage term, one must take into account the amount of the loan, the amortization plan and the available resources of the applicant.

The creditworthiness of the customer is the main factor that determines whether a loan is granted in the first place. Banks carefully consider the loan-to-value ratio and the mortgage affordability of potential borrowers. The loan-to-value ratio must not exceed 80%, which means that a home buyer must provide at least 20% of the purchase price of the property with his or her own funds

The affordability describes the ratio between the gross income and mortgage related costs such as interest costs (calculated with an imputed interest rate of 5%) as well as amortization and maintenance costs. As a rule of thumb, the mortgage-related costs should not be higher than a third of your gross income. Depending on the risk assessment of banks, creditworthiness may affect the fixed-rate mortgage and its interest rate.

A summary of the most important information on fixed-rate mortgages and their interest rate

Planning security and a reliable amortization plan - the fixed-rate mortgage is the most secure form of all types of property financing. If, as in previous years, particularly low-interest rates are available, fixed-rate mortgages rise in popularity. The best terms, however, can only be secured by customers who are able to make a comprehensive comparison of fixed-rate mortgages. The interest rate of a fixed-rate mortgage is very important but it is not the only criterion. Amortization and the terms and conditions for early withdrawal may also be of equal relevance.

MoneyPark offers independent, in-person advice and finds the best solution out of the offers of more than 100 mortgage lenders. We guide you through the entire process and make sure you save as much money as possible when financing your new home.

Current mortgage rates

The displayed interest rates are the best rates currently available. Your personal interest rates may vary depending on LTV, affordability, mortgage amount and the location of the property.

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