Mortgage types

We are going to breakdown what different types of mortgages there are
Mostly there are three types of mortgage, which are different based on the interest rate that applies to them:

Variable-rate mortgage

changes as a function of fluctuations in the Euribor, causing the payment amount to increase or decrease with the Euribor. The nominal interest rate (NIR) is calculated by summing the differential that the bank applies and the value of the Euribor for that month, i.e. NIR = differential + Euribor.
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Usually, the Euribor figure for the month in which the mortgage is signed is applied, and every six months the interest rate is updated based on the Euribor. This way, the same amount is paid for six months, and after this time the installment amount is recalculated, with the possibility of it going up or down.

Fixed mortgage

With this mortgage the same interest rate is applied for the life of the loan which results in a monthly payment that never changes. In this type of mortgage, the Euribor is not used to calculate the interest rate. On this occasion, the bank offers the mortgage at a fixed interest rate, which would only vary if the agreed conditions are broken (entailment of salary, insurance, plans, etc).

Usually, financial institutions offer their fixed-rate mortgages at an interest rate that is higher than that offered in their floating rate mortgages. The advantage of a fixed-rate mortgage is that you can avoid unexpected surprises resulting from increases in the Euribor, since you always pay the same amount.

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Mixed rate mortgage

Mixed mortgages work like fixed-rate and variable-rate mortgages combined, although in practice, they behave like a variable-rate mortgage. The bank offers a mortgage that works at a fixed interest rate for a few years and for the remaining years an interest rate based on the Euribor is applied. For example, a mixed-rate mortgage could have a fixed interest rate during the first 10 years, and the rest of the loan would have a variable interest rate applied based on the Euribor. This mortgage allows the holder to benefit from not suffering increases in the monthly repayments during the initial years, and in the future to adapt to the situation of the Euribor.
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