We often get the question and we see it at least as often in different forums. The answer, of course, is YES! You have to choose.
But the right question is what the consequences may be in choosing one or the other. How much can it cost to choose wrong?
Question and expect a clear answer, you will be disappointed.
All we can do is create some calculations based on different assumptions, so here we do with an example,
where we compare a 2% loan * with an F Card ** and an F5 loan ***.
The market value of the loans is USD 1 million and they are all repaid over 30 years .
The calculations are done 10 years ahead and all figures are averaged over 10 years.
So far, there is no doubt. F-Cards are best, but will interest rates be fixed for the next 10 years?
Maybe, but probably not, so now we assume interest rates will rise by 1% in 2 years:
To this end, F-card is still the winner, but if now interest rates rise by another 1% after another 2 years:
* rate 99 which means the starting debt is USD 10,000 higher. The contribution rate is 0.74%.
** The interest rate on F-Cards is adjusted every six months. The contribution rate is 0.9%.
*** The interest rate is fixed for 5 years. The starting rate is 0.32% and the contribution rate is 0.88%.
**** The savings are non-interest-bearing and can be increased by e.g. to repay on other debt.
***** It is assumed that the rate will fall by 7 points when interest rates rise by 1%.
Did you then become wiser?
Surely not, because you can keep changing the assumptions and you get other numbers.
What you can say, however, is that if you look at the possibilities in the short term, you can reduce the net benefit here and now by 508 kroner. per month by choosing an F-Card rather than a 2% loan.
But you only know the benefit 6 months ahead.
If you choose the F5 loan you know the benefit for 5 years and can save 409 kroner compared to the 2% loan.
Not exactly higher-level mathematics to conclude that interest rates
Should rise by just over 2% before the floating-rate loans become more expensive in payment when the difference is initially approx. 2%.
But this very premise has many. “We can withstand interest rates rise by 2%” and that is of course true.
But keep in mind that if the interest rate rises by 2% and you want a fixed interest rate from here, it is probably 4% or higher instead of 2% now
If you choose the fixed interest rate, we can help you with ongoing monitoring of the loan and your conversions.