Distinguishing types of the interest rates and their pros and cons

The key measure when applying for a mortgage is the fixation period. This article explains what fixation periods are and what are their pros and cons.

The fixation period is a period of duration in which the client pays the same payment at specified rate of interest. Thanks to the fixation period the client knows what his monthly payments will be and that they will not change for the term of the fixation. 

Usually the shorter fixation period the client choses, the lower the interest rate he/she is able to negotiate or is offered. When choosing the longer period since it is difficult to predict how the interest rates will change in the future mortage providers typically charge higher rates of interest. But now this common rule is starting to change.  Since the amount of new mortgages dropped significantly this year, banks are trying to keep their clients for as long as possilbe. After the end of the fixation period the client can decide whether he´s going to continue with his current bank or if he will choose another one which will offer him better terms and conditions. In order not to loose clients, banks are now offering longer fixation periods with a better (more competitive rates) and that´s how they make sure their client will re-negotiate the mortgage at their bank. 

The convenience for the client when it comes to the fixation period is that he can plan his household expenses longterm. During the fixation period he know exactly how much he´ll need to pay the bank. The amount of the interest rate is secured for the duration that he choses the fixation. If he expects that the interest rates will be increasing in the future, the longer fixation period is more convenient. On the other hand, if he expects them to decrease or he expects to earn some larger financial amount, it is better to fix the mortgage for a shorter period. This move will enable him to repay the mortgage sooner. 

The fixation period can be divided to a three categories:

- short term

- medium term

- long term

Short term fixation period are mostly for one year. Their supply is not as high as the supply in the medium term fixations. This fixation period is offered for example by mBank, Ceska sporitelna or CSOB. 

The most common fixation periods are the medium term, for three or five years. These are offered by almost every bank. 

The last type is the long time fixation period. It is usually for seven, eight and ten years. Some banks, such as Unicredit, Ceska sporitelna or CSOB are offering fixations for fifteen or twenty years. 

An unique type of fixation periods are float mortgages. The number of float mortgages sold has decreased a lot over the years. It is a mortgage with a moving interest rate. It´s percentage changes according to the current situation on the market, and is usually tied to the interest rates set by the Czech National Bank. This rate is not fixed and it changes every month or a quater of a year. So it can decrease but also increase. It is convenient in case the decrease in the interest rates is expected. 

You can start negotiating new conditions of your fixation period  two years before the end of your current fixation period. It is convenient if interest rates are currently low or if some other bank is offering better conditions. If your fixation period is approaching its end and you are thinking about refinancing  your mortgage, do not hesitate to contact us. Our mortgage brokers will be happy to help you find the best conditions on the market.

You can find the current fixation periods offered by the banks in the following table.