Fixed or floating interest rates are usually a matter of security. You will almost always end up paying less in total interest costs with a floating interest rate, but you must also have an economy that can withstand high interest rate fluctuations. The extra cost of fixed interest is therefore often seen as an insurance premium. You pay a little more overall but you don’t have to worry if the market interest rate goes up. That said, it is still possible to save money on fixed interest rates if it is believed that the market interest rate will remain consistently high over a certain period.
Rule of thumb when choosing solid or liquid
As a rule of thumb, you will probably do well with floating interest rates if you are well established and the loan amount does not exceed your annual income. Moreover, floating rate loans give you more flexibility and you can increase the repayments or repay the entire loan amount ahead of time, if you wish.
If, on the other hand, you are uncertain about what you can withstand interest rate fluctuations, it may be an advantage to fix the interest rate. This gives you a better overview and a predictable repayment schedule. You thus know exactly how much to pay in interest and installments each month.
A disadvantage with fixed interest rates is that it can make it difficult to increase the loan amount, get the installment, repay or refinance. If you want to repay before the binding period, you may have to pay premiums if the fixed interest rate is above the market interest rate at the time of redemption. On the other hand, there are opportunities to get money back if you settle for a discount, that is, if the fixed rate is below market rate.
There is no need to fix the interest rate for the entire loan period
And it is common with three, five or ten year bond periods. If it is security that is the factor, you should preferably tie for at least five years, so that you have time to pay down the installments and maybe get yourself a salary increase. It should also not be disregarded that the floating market interest rate can remain at a high level over a longer period, and then it is not only safer but also more profitable to fix the interest rate.
But solid or liquid need not, strictly speaking, be a matter of either or, and for many, a combination may be advisable. This ensures both security and flexibility. The solution is then usually a short repayment period for the part of the loan amount that has a fixed interest rate and a longer repayment period for the liquidator.