Fixed or floating interest rate?

Floating interest rate

The floating interest rate changes according to the general interest rate level. The interest rate can be changed every 2 months. In the event of a rise in interest rates, the Housing Bank will notify you of this approximately six weeks before the change takes effect. 

Floating interest rate advantages

• Your interest costs will decrease according to reductions in general interest level.
• You have more options concerning changes in repayment plan. 
• You may choose to change to fixed interest rate at any time.

Floating interest rate disadvantages

• Your interest costs will increase according to increasing general interest level. 
• You are not able to predict your future interest costs.

Fixed interest rate

If you choose a loan with a fixed interest rate, you are tied to the same interest rate for 3, 5, 10 or 20 years (the lock-in period). The commitment period can not be longer than the remaining term of your loan. This means that you cannot choose a 20-year fixed-rate agreement if you only have 15 years left to repay your loan.

Fixed interest rate advantages

• Your interest costs are predictable within the fixed agreement period. 
• Your repayments of interest are set during the fixed agreement period, even if the general interest level increases in the same period of time.

Fixed interest rate disadvantages

• Your repayments of interest are set during the fixed agreement period, even if the general interest level decreases in the same period of time. 
• You have less options concerning changes in repayment plan.
• There is a risk that you will have to pay a penalty fee in certain situations (see below).

Breach of fixed interest rate agreement

Extra repayments or redemption of the debt within the term of the agreement will incur a redemption penalty at a premium or discount rate. Transferring the loan to floating interest rate or to a new borrower will have the same consequences. The fixed agreement will continue for the residual loan.

What should you choose?

Whether you should choose fixed or floating interest rate depends on your financial situation and predictions of future interest level, based on current knowledge. By fixing your interest you will get security against an increasing interest rate within the fixed agreement period. As a main rule, floating interest rate has shown to result in lower interest costs than our offers on fixed interest during the same period of time, but this may vary. If you choose floating interest rate, you may change to fixed interest rate without any extra costs.