Norway/House loan interest rates
QUESTION: Hi Roy,
Recently the banks have reduced their interest on the housing loan. Few offers up to 2,3% fixed interest for 3 years period while the floating is 2,8%. For a loan approx. 3,5 million, this makes huge difference. I contacted few banks with an intention to change the loan and I was offered following options.
1. 70% total sum with fixed interest (2,3%) and the rest with 2,8% floating (from first bank. he say that the floating interest has never been below 2% before and as a total this option is more benefit for me.
2. On the other hand, the second bank offer is, 100% total with 2,7% floating interest. He says that it is not advisable to go with fixed interest as the "yield curve til 2018" is almost flat. So he suggest to go with floating interest.
Though currently there is no much difference in the offers, any major change (if the floating interest goes below 1,75% will make a major difference in my payment. I wonder if you have any suggestion based on your experience that might help for my decision. Thanks in advance.
ANSWER: Fixed interest is something you do if you can not handle sudden changes, or any changes in the interest level. The banks charge a premium on their projections for the floating interest for offering fixed interest to customers. If the fixed interest on offer is lower than the current floating interest that is indicative of the bank believing that the floating interest will over the course of the period projected be even lower on average.
It is a bet really. If you take up on a fixed interest deal you bet on the banks estimates of the interest rates in the period being to low. If the interest rates go above the expectations of the bank, you win. If the interest rates go below the expectations of the bank, the bank wins.
In normal situations the floating interest will always be slightly lower than the fixed interest over time.
With interest rates as low as they are now, and with prospects of sudden interest rises very low, I'd stick with floating interest - and complain to the bank whenever they offer fixed interest rates lower than your current floating interest.
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QUESTION: Thanks for your replies Roy and is appreciated.
Regarding your "...and complain to the bank whenever they offer fixed interest rates lower than your current floating interest".
Is this possible to complain to the banks? What way they will compensate?
No, not compensate. But if you did not sign a fixed interest agreement, then you can always negotiate with the bank if you see that the floating interest you're paying is higher than market rate. Banks aren't known for voluntarily lowering the interest rates on loans.
However, if you signed a fixed interest agreement, then you're stuck until it expires.