Test what your finances stand for.
The answers to the three questions below can determine how to handle the constant issue of millions of Swedes: bind the loan or leave it moving?
- You always have to have a housing cost that you can afford at all times, says Arturo Arques, private economist at Swedbank.
No one knows when interest rates rise but all experts agree that they do.
The spring of 2018 is usually mentioned as the timing of when the historically low interest rates we currently enjoy will pass on to history.
The decision that Stefan Ingves remains as head of the Riksbank may indeed lead to a longer “protection” of the low interest rate situation, according to some analysts.
But for anyone who is considering tying interest rates, it can still be an idea to do so now, and not wait for the migrating birds to return with the interest rate increases.
But tying home mortgages should not be done without careful consideration.
Historically, it has been shown that variable mortgage rates are winners in the long run, but you should also be able to afford to live with the fluctuations.
Let the private economy decide
Your household’s personal finances should determine how you should handle your home loans, says Arturo Arques, private economist at Swedbank.
He gives two examples:
MONITORING MOBILITY: If you have good margins for your finances and low lending to your accommodation even in relation to your income, you probably do not need to run your legs to tie the mortgage loans. Instead, use periods of good finances to repay.
MONITORING THE BUND: If you have small margins and a high level of indebtedness in relation to your income and the value of the home, you do not have the same opportunities to gamble with variable interest rates. If you are not about to move soon, you should consider tying the loans now that, for example, three-year rates are still cheap.
The answers can help you
Arturo Arques has developed a calculation model to determine where you are with your finances.
The method is to make your financial position visible by asking yourself three questions.
QUESTION 1. Do I have a buffer of two to three monthly salaries after tax?
If you live in a single household and receive SEK 20,000 after tax, you should therefore have 60,000 on the bank. If you are two income earners who together receive 40,000 after tax, you should have a buffer of almost 120,000 SEK.
QUESTION 2. Can I save ten percent of the net salary each month?
If you live alone and receive 20,000 after tax, you should have room to save 2,000 a month. As a couple at the same pay position for both as above, you should be able to put away 4,000 each month.
QUESTION 3. Can I stay in existing housing even in the event of unemployment, long-term illness or divorce?
Count on what you are faced with in a “worst case scenario”. How much do I have to do if I lose my job? Is the buffer available that allows you to plan the next step in life under calm forms?
“Have advice – at all times”
If you answer yes to all the questions, you have a healthy economy and can have ice in your stomach. Continue with variable loans, in parallel with a saving in, for example, investment savings account (ISK).
If you answer no to one of the questions, consider tying the loans.
If you answer no to several of the questions, the solution can be to review your entire situation and choose cheaper accommodation.
In parallel with higher mortgage rates, the interest deduction may be reduced, as the Minister of Finance Magdalena Andersson (S) gives increasingly clear signals.
- You always have to have a housing cost that you can afford in all situations, says Arturo Arques.