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Fixed or variable interest rate loans?

Financial Law

Antonio Flores Vila

12th of December 1999

Q. I am thinking on borrowing money to raise funds for a property purchase. Would you recommend a fixed interest rate loan as opposed to a variable interest rate loan?

Anonymous

    A. Fixed interest rate loans have suffered a sharp increase in the last months. Some banks had good fixed loans last summer, but have now been modified upwards due to the increase in the reference indexes. Although the increase has an effect on both type of loans, banks are cautious and do not wish to take risks with fixed loans. This caution has a direct effect on the cost of the mortgage, which is considerably higher than variable mortgage loan rates.

    All consumer associations unvariably recommend variable rate loans since a rise of indexes are not expected in the following years.



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