Looking to commit to a loan refinancing process? Discover which loan refinancing rate is most beneficial for you.
Variable Rate or Fixed Rate: Which Loan Refinancing Rate?
Like any credit application, you can choose between a fixed or variable rate when refinancing a loan. To optimize your choice during this process aimed at obtaining more flexible terms and securing a better rate than your existing loan, you must carefully analyze the advantages and disadvantages of each.
Therefore, if you choose loan refinancing, you agree to submit to market rate fluctuations throughout the repayment period of your loan.
With this option, the base interest rate of your loan may decrease or increase based on market trends.
It should be noted that it is confined within a predetermined and limited range. Regardless of the rate increase, the double of the initial rate is not surpassed. Clearly, the risk incurred in terms of total amount impact is higher than in a fixed-rate loan.
However, this choice can be quite appealing with more attractive rates at the start of the contract. The formula chosen by the applicant allows for better adaptation, and besides being more advantageous than fixed rates at the beginning of repayment, variable rates are a smart solution if rates rise.
The possibility for the borrower to benefit from adapted monthly payments when rates decrease and an increase capped at double the initial rate are additional benefits you can draw from this choice.
However, keep in mind that if market rates soar, yours will also rise, resulting in an increase of the total amount to be repaid to your lender.
By opting for loan refinancing, you have a clear idea of the exact amount of your monthly payments to be made until the end of your contract.
Rates are predetermined when you refinance your existing credit by subscribing to a new loan. Since they remain unchanged over the life of your loan, they are advantageous when market rates are low.
A fixed rate thus offers greater security for borrowers. However, do not think it will always be beneficial. Be aware that if your initial fixed interest rate is high, it will remain unchanged even if rates decrease during your loan repayment period.
Good to Know Before Choosing a Loan Refinancing Rate
Regardless of the type of ongoing credit, you need to know that the type of interest rate you choose impacts the final cost of the operation.
This is why certain precautions should be taken to ensure the best possible conditions for your new loan. Whether it is the National Bank of Belgium or any other Belgian credit institution you wish to contact, know that the supervisory authority (the SPF Economy) imposes rules to be adhered to.
Along with the fixed or variable rate, which must be indicated in the contract, other cost-related information, such as the reinvestment indemnity, must be included in the legal mentions.
