Norway recently announced their upping the official bank rate to 1.5%. This will in most cases also affect rates on loans given to those interested in e.g. buying a house.
You can choose to either bind the rate, keep it floating with the market or a combination of both. Binding the rate introduces a risk for you to pay too much, whereas a floating rate may explode.
Some say that binding the rate serves as a cheap insurance. You’re guaranteed not to run into a too high rate, like what Norway saw around the 90s, where rates were above 20%.
On the flipside, rates are overall throughout Europe and Norway has to stay close the European rates to prevent arbitrage opportunities in currencies and government bonds. Whats the overall likelyhood of a more-than double increase of interest rates? Which is what banks require for a fixed 20-year rate, anyhow.
The best advice I’ve heard so far was on the (Norwegian) podcast “Dine Penger” (directly translated as “Your Money”), which is too choose a variable rate, but to save up equal to a fixed rate in your bank. This gives you extra money in the bank, and also provides support for unexpected rate increases. The money can also be used to pay down the loan quicklier at whichever time you find useful. This is certainly an advice that 420 000 Norwegians that cannot survive an increase in rates of more than 1% should hear. They and/or the banks somehow avoided a prohibition to issue loans to people that cannot outlive at least a 5% increase.
0 comments