Is refinancing a home loan now a good idea?
The interest rate on home loans is historically low, but not everyone can benefit from it. Did you take out a home loan in 2005 or 2006 with an annually adjustable formula? Then there is a chance that you now pay 0% interest on your credit, which means that you can live almost for free. Is it therefore interesting to refinance an existing home loan and to use an annually adjustable formula? Not in all cases this provides a benefit, so let a financial expert take a good look at it.
Annually adjustable interest at a historically low level
The annually adjustable interest rate has never before been this low. This has to do with the reference index A, which the banks use to adjust their interest rates automatically. The reference index A fell to -0.007% per year, which means that some customers can now count on an interest rate of 0% per year. That means that they can live for free, although this benefit is not for everyone. Only customers who opted for an annually adaptable formula years ago can now borrow money for free.
Starting interest rate relatively high
Would you refinance your home loan to make borrowing money cheaper? Bear in mind that there is a starting interest rate, that it will adjust the bank based on the development of the market interest rate. The advertised starting interest rate is currently, for example, around 3.7% per year, considerably more than the 0% reserved for a few. Most clients with a home loan whose interest rate is adjusted annually is between 2.5 and 3% per year. A good negotiator is likely to close the interest rate just below 3% for a new home loan at the bank.
Interest rate development in the future
However, bear in mind that there is a good chance that the interest rate will rise in the future. The reference index A is now at a historically low point, which means that interest rates can actually only rise. If you now start with a starting interest rate of 3% per year, there is a good chance that the interest rate will rise to 3.5%, 4% or even 5% in the coming years. In that regard, it is not always wise to refinance your home loan and to use an annually adjustable formula, a fixed-rate period for a longer period may seem wiser.