Fixed, variable, and mixed mortgages: How to choose the best option

When planning to buy a property in Spain, one of the main decisions to make is choosing the right type of mortgage to finance the purchase. If you need to go for this sort of product, it is important to understand the differences between fixed rate, variable rate, and mixed rate mortgages available to you. Each type is better suited to different financial situations and long-term goals.

Below, we will analyse the different options available on the market, their advantages and disadvantages, and other relevant factors to help you make a well-informed decision.

Types of mortgages for properties

As we have mentioned, there are three possibilities. The first type is the fixed rate mortgage, which offers an interest rate that remains constant throughout the loan term. This means that the monthly repayments will not change, except in the case of early cancellations. Thanks to this, you will have more stability and a clearer forecast of what your long-term expenses will be, which could help you to better manage your budget.

The variable rate mortgage has an interest rate that fluctuates according to market conditions. This rate is usually linked to a reference index, such as the Euribor (Euro Interbank Offered Rate) in Europe, together with a margin agreed with the financial entity.

Finally, the mixed rate mortgage combines features of both fixed and variable rate mortgages. Initially, we will see that the interest rate is fixed for a predetermined period, usually between 3 and 10 years. After this period, the mortgage changes to a variable rate until the debt is paid off.

Advantages and disadvantages of the different mortgage models in Spain

Each of the above types of mortgages will bring you different advantages that will better adapt to the various circumstances that you have as buyer of a property. We must also consider their potential weaknesses, which will depend mostly on your interests and objectives.

Advantages of fixed mortgages

• Monthly payments are predictable, as theiramount does not vary over time unless early repayments are made. The interest rate to which they are linked will always be the same.
• They are a safeguard against rises in global interest rates.
• Budgeting and financial planning are easier to manage.

Disadvantages of fixed mortgages

• Compared to variable mortgages, they have higher interest rates in their first years and, if the market trends downwards, you will have to pay back a higher amount. You should consider whether it would be more appropriate to pay lower instalments at least for the initial repayment period.
• Because of the previous point, they have much less flexibility to take advantage of interest rate drops that may occur.
• Their total cost is potentially higher if market rates remain low.

Advantages of variable mortgages

• Initial repayments will be lower due to lower interest rates compared to fixed rate mortgages.
• They offer good long-term savings potential if the linked interest rates decrease over the loan repayment period.
• They offer some flexibility in repayment. In fact, it is more common to find variable mortgages with lower penalties for early repayment, which will allow you to repay the loan more quickly if your financial situation improves.

Disadvantages of variable mortgages

• You will have to assume that your monthly payments are unpredictable due to interest rate fluctuations.
• They involve a higher financial risk if there is a significant rise in market interest rates. .
• You will find it more complex to plan your finances in the long term.

Advantages of mixed mortgages

• Mixed rate mortgages combine stability and flexibility regarding interest rates. The initial fixed-rate period (typically 5 to 15 years) provides stability and predictability in monthly payments, allowing you to protect yourself from interest rate fluctuations. After that period, the variable rate can reduce repayments if market rates fall.
• They are more flexible to adapt to different financial situations. In the short term, they provide stability because the fixed rate period is more beneficial if you need financial security and plan to re-evaluate your mortgage options after a few years.
• They are interesting for better financial planning. In addition to knowing what you are going to pay in the initial fixed-rate period, mixed mortgages often have early repayment or refinancing options.

Disadvantages of mixed mortgages

• After the initial fixed-rate period, the mortgage becomes variable, which introduces uncertainty into future monthly payments and affects the budget you have.
• The initial fixed-rate period in a mixed mortgage can have a higher interest rate compared to pure variable mortgages. This makes them less attractive if you want to minimise your more immediate expenses.
• Finally, if the market points to possible decreases in interest rates in the short and medium term, i.e. during the fixed period of the mortgage, you will not be able to benefit from this until the mortgage changes to variable.

Differences between fixed and variable mortgages

In Spain, the most common mortgages are variable and fixed, but which one should you choose? The previous points have allowed you to see their benefits and disadvantages. Here is a summary of the main differences:

Choosing a mortgage: main factors

When selecting your mortgage, consider these three key factors:

1. Financial stability: This will be the first determining factor. If you prefer stable payments and sound financial planning, a fixed mortgage may be the most suitable.
2. Market conditions: Assess current trends and expert forecasts of interest rate developments. You should also consider your tolerance for financial risk.
3. Property usage plans: It is important to consider how you want to use the property. If you plan to sell it or refinance it after a few years, a mixed mortgage could be a balanced option.

Switching from a variable to a fixed rate mortgage

In a variable mortgage, the interest rate is usually linked to Euribor, which is the rate at which European banks lend money to each other. This figure is revised periodically, normally every 6 or 12 months (in Spain, the revision of fixed mortgages is more common on an annual basis). So, if the Euribor rises or falls, your mortgage interest rate and monthly repayments will be adjusted accordingly.

When rates rise continuously, increasing what you must pay to the bank from time to time, it is normal to wonder if it is possible to change your variable mortgage to a fixed one. The answer is "yes", and it is quite common in Spain.

To do so, you must ask the financial entity that has extended the loan to carry out a process known as "subrogation". This consists of refinancing your current mortgage, establishing the fixed rate that, from that moment on, will be applied to the rest of the instalments to be paid.

However, it is important that you consider the possible fees and penalties for early repayment that you may incur. Depending on how you negotiate the conditions of the mortgage, this early repayment may always entail a percentage charge or, on the contrary, it may be free of charge, at least from the second year of the loan onwards. You should also evaluate the new conditions offered by the bank to be sure that the operation will be advantageous.

Mortgage costs in Spain

It is important to be aware that all mortgages will have specific costs associated with them in Spain.

• Arrangement fees: Normally between 0.5% and 1.5% of the loan amount. For example, Banco Santander typically charges 1% for arrangement fees, while BBVA may charge around 0.5%. However, it's worth noting that many banks do not charge an arrangement fee. For instance, ING Direct often offers mortgages without any arrangement fees.
• Appraisal fees: between 300 and 600 euros.
• Registration fees: these are approximately 0.2% of the loan amount. Registration is carried out at the Land Registry, a public institution whose main function is to register and notify acts and contracts relating to real estate and rights over real estate. Although similar institutions exist in most European countries, there are also notable differences in Spain with respect to the systems established in France, Austria, the Netherlands and France.
• Early repayment fees: these do not always exist, but depending on what you negotiate, if you have these fees, they can be up to 0.5% for variable rate mortgages and up to 2% for fixed rate mortgages.

Almost all Spanish banks will provide you with access to simulators to estimate the costs of your mortgage. Additionally, we also have a simulator on our property detail pages to help you estimate your mortgage expenses more accurately.

For your guidance, here is a rough estimate for the following case: buying a second-hand property in Valencia for a value of 250,000 euros. If you contribute 30% of its value and only finance the remaining 70% (around 175,000 euros), your general expenses will be approximately 22,000 euros. Which mortgage model requires you to pay more instalments and a higher total amount today?

• In the case of the fixed rate, at a stable interest rate of 2.40%, you would have to pay just over 70,000 euros in interest. Your monthly repayment would be almost 700 euros.
• In the case of the variable rate, at an initial interest rate of 3.90%, you would have to pay almost 120,000 euros in interest. Your monthly instalment would also be around 900 euros. However, the interest rate can fluctuate downwards and reduce these amounts.

Financial institutions in Spain usually offer a reduction in the interest rate applied if you take out certain linked products with the bank. These products include life insurance (reducing the risk to the bank in the event of the mortgage holder's death), home insurance (protecting the mortgaged home against damage, so that the bank reduces its risk), pension plans, credit and debit cards, as well as other savings and investment products, such as funds and fixed-term deposits.

The aim of this strategy is to ensure customer loyalty and diversify the bank's income. You can see your interest rate reduced by up to one percentage point. However, you should read the conditions of these products carefully, as they may include commitments of permanence or penalties in the event of cancellation.

Are there mortgage differences for residents and non-residents in Spain?

You should keep in mind that banks may consider a loan-to-value or LTV ratio unfavourable for non-residents in Spain. Residents can normally borrow up to 80% of the value of the property, while non-residents are usually limited to 60-70%.

Non-residents may also face slightly higher interest rates and will need to be prepared to provide additional documentation, such as proof of income or proof of assets in their home country.

However, note that there are Spanish banks that offer mortgage products and services tailored to foreign nationals, including the availability of advisors who can speak to you in English, as well as online platforms to manage applications. In addition, some regions within the country may offer incentives or subsidies for property investment, especially in areas aimed at boosting tourism or revitalising local communities. Consider all these opportunities to make your final decision as suitable as possible.

If you want to know more about this topic, we recommend reading our article on mortgages for non-residents in Spain.