Should you choose a fixed or a variable interest rate?

• What does a fixed interest rate involve?
  

A fixed interest rate means that the interest rate is fixed at the start of your mortgage loan. It is important to note that this percentage will not change again, regardless of developments in interest rates.

• When should you choose a fixed interest rate?
  

A fixed interest rate can be advantageous if interest rates are low at the time you take out your loan – especially if you think that rates are set to rise. In that case, you'll continue to benefit from the low interest rate despite the increase in rates.

• The benefits of a fixed interest rate
  

Your interest rate remains the same every month until the end of your loan. You are shielded from any unpleasant surprises regardless of whether your loan has a term of 15, 20 or 25 years. The fixed rate makes it easier for you to plan your other expenditure and means you can play things safe.

• The disadvantages of a fixed interest rate
  

You'll be unable to profit from any interest rate falls.

• What does a variable interest rate involve?
  

If you opt for a variable interest rate, your interest rate will be adjusted after a certain period of time. This can work in your favour if the interest rate falls, or to your disadvantage if it rises. The exact timing of the interest-rate reviews is set out in the loan product description. The review takes place at least annually or at most every five years.

In the case of a variable rate of interest, the interest rate on your home loan is reviewed after a certain period of time, as stipulated by law. However, it remains unchanged between the interest-rate review periods.

At KBC Brussels, you can opt for a 1, 3 or 5-year interest rate review period. At the time the interest rate is reviewed, you can choose to shorten, maintain or extend the term of your home loan at no cost. This is referred to as your accordion option:

• If you want your monthly repayments to stay the same but your interest rate has gone up, you extend the term of your loan.
  
• If you want your monthly repayments to stay the same but your interest rate has fallen, you shorten the term of your loan.
  
• If you want to repay less each month, you extend the term of your loan.
  
• If you want to repay more each month, you shorten the term of your loan.
• If you decide not to change the term of your loan, your monthly repayments will increase if the interest rate rises and decrease if it falls.

However, the original term of your home loan can never be shortened or extended by more than one-fifth. For tax reasons, the total term must be at least 10 years.

So, the accordion option not only lets you respond to the changes in interest rates over time, but also allows you to better tailor your loan-related payments to your personal situation. What’s more, you can easily simulate and make such changes yourself in KBC Brussels Touch or KBC Brussels Mobile.

Choosing a variable-rate home loan, therefore, makes sense not only when market rates are high, but also when you want flexibility to respond to changes in your personal situation in the future.

• When should you choose a variable interest rate?
  

Variable options are chosen more often when market interest rates are high. Customers hope that the interest rate will fall during the term of the loan.

• The benefits of a variable interest rate
  

A variable interest rate can rise or fall within a certain band

The ‘cap’ sets the maximum that may be deviated from the general rule. The law stipulates that an interest rate may at most double.

• Reducing or extending the term
  

At KBC Brussels, you can change the term of your home loan at no cost at the time of the interest-rate review.

• Disadvantages of a variable interest rate
  

If market interest rates rise, your monthly repayments will rise following an interest-rate review.

If you go for a variable option, you should always take account of the future interest charges if the interest rate rises. Are you prepared for paying these higher interest charges and is that financially feasible? Or would you prefer to have absolute certainty? If so, you'd maybe be better going for a fixed-rate option. It's also possible to combine the fixed and variable-rate options.

Talk about what you envisage for your home to one of our YourHome Experts any time that suits you.