It is unlikely that any of the people who have ever taken out a loan paid attention to type of interest rate specified in the loan agreement. But it is he who will influence the bank loan repayment scheme (). For example, there will be a sharp foreign exchange rate jump, and the interest rate situation will change. The floating rate may increase or decrease. There is no stability. With a fixed rate, the opposite happens. This is a constant value that does not depend on the economic situation in the country. So what interest rate should you choose when applying for a loan?

Floating interest rate

Floating interest rate– this is a rate that may change throughout the loan period. This rate consists of the following parts:

• Constant value;
• Variable size.

Due to the second part (variable) the bank loan will change. The floating interest rate can be represented by the following expression:

“floating interest rate” = “variable amount” + “...%”
Among the banking variables, the following are distinguished:

• Libor (London Interbank Offered Rate);
• Euribor;
• MOSPRIME et al.

Each of these values ​​has its own impact on the floating interest rate. Depending on which of them the financial institution uses for calculation, the final loan rate. So, Libor is the weighted average rate on the London Stock Exchange. Banks lend to each other at this rate. When it comes to consumer lending, the interest rate will look like this:
"Libor+%%".
Additional interest- This is the creditor bank's surcharge. Typically, for loans in foreign currency, excess interest is set at 3.5%, and for loans in national currency - 5% per annum (considered the most unstable and dependent on the exchange rate of the dollar, euro or other monetary unit). During the growth of the floating index, the percentage value will increase. For example, you contacted Sberbank, and it decided to VTB-24 for exactly one year. So, during this year the interest rate with additional interest from the lender will be fixed for exactly one year. If you take out a loan for several years, you should expect an increase in the rate in the second and subsequent years of the loan term. In addition, the interest rate on loans issued for different periods (1 month, 6 months, a year, etc.) has different meanings. Almost all are issued at a floating interest rate. The interest rate changes on average twice a year, and the floating rate coefficient changes once every six months. This value may also change after three months or after a year. Due to the fact that frequent changes in the interest rate are inconvenient for both the bank and the borrower, the financial institution changes its value on average once every six months. When drawing up a credit schedule, the bank takes into account the value of the floating index in each credit period. Interest rate may change according to the terms of the loan agreement, as well as by agreement between the parties (lender and borrower).

Fixed interest rate

Fixed interest rate– this is a rate that is set by the bank with additional interest, possible risks, etc. It does not change throughout the entire loan period and does not depend on economic stability in our country. The fixed interest rate is set for only one year. Consequently, the size of the monthly payment also does not change during the entire loan period. So, for example, if you took out a car loan for a period of 5 years at 15%, then for all five years you will make regular payments taking into account this 15%. A fixed rate is a sign of stability and confidence in the future. That's what borrowers say about it. After all, if you have a stable salary, official employment, and you do not depend, for example, on the US dollar exchange rate, then the best option for you is fixed rate loan.

Which interest rate is better?

If we compare the two interest rates listed above, it should be noted that each of them has its own pros and cons. For example, if the floating index increases, then the loan percentage will increase, but if it decreases, then you can save on this type of loan. And here you need to decide immediately whether to take risks or not. After all, no one knows in which direction the rate index will move: “up” or “down.” With a fixed interest rate, in terms of reliability, the situation is different. The borrower does not need to think about tomorrow and increasing the loan rate.
Summary: Decide for yourself which bet you should choose. Let's just say one thing - there are not so many banks that issue loans with a floating interest rate (Raiffeisenbank, OTP Bank).

Many people, when applying for a mortgage loan, are confused when the bank manager asks at what interest rate the borrower wants to take out a loan - fixed or variable. Of course, without knowing the difference between floating interest rates and fixed ones, it is difficult to immediately answer the bank employee’s question, and since people strive for stability, most often they choose fixed interest rates. Let's consider the difference between existing schemes for calculating the amount of interest on a loan.

Floating interest rate and its features

The floating annual rate differs from the fixed interest established at the conclusion of the agreement in that its value is not constant, it depends on the specific bank indicator. This rate consists of two parts - the main part, which does not change, and the floating index, which directly affects the change in interest. Many bank clients, when applying for a mortgage, do not want to set a changing rate precisely because of this index, as they are afraid of its sharp increase. In turn, lenders, in order not to lose their clients, make concessions to borrowers and set a certain limit on the interest rate, which cannot be exceeded, even if the index increases and the estimated amount of interest on the loan is higher than the established maximum.

Floating rate index

The formation of the floating interest rate index itself by banks is based on the LIBOR or MosPrime indicator. LIBOR is the percentage used when one banking organization lends money to another bank. This value is formed taking into account the level of these interest rates in the largest banks in the world. It is calculated for seven currencies and for a period from several days to a year. Basically, Russian lenders in their calculations use the level of this indicator calculated for six months. In a borrowing agreement, banks often indicate the amount of floating interest equal to, for example, 3+ LIBOR.

This is if the bank takes global indicators as a basis for setting its interest rates. However, another option is possible when the lender takes as a basis a similar indicator for the Russian Federation - MosPrime, which appeared in 2005. MosPrime is calculated based on similar percentages for the eight largest financial and credit institutions of the Russian Federation. This indicator is calculated over weeks and months. For example, for one week, two weeks, one or two months, a quarter or six months.

Advantages and disadvantages

A fixed interest rate allows borrowers to take out a loan, which will definitely not increase in price throughout the entire period of borrowing. However, a floating interest rate allows bank clients to borrow money at initially lower interest rates than with a fixed rate. As a last resort, if the floating rate index increases, the borrower can always refinance the mortgage loan and get another loan with a fixed rate from another lender.

Which is better - a fixed rate or a variable rate?

Answers

Today there are many mortgage programs. Each program has its own parameters, one of them is the interest rate - fixed or floating.
In general, we can say that choosing the type of interest rate is one of the main steps of a mortgage transaction.
Fixed interest rate is a system of interest accrual, when throughout the entire loan term, loan payments are calculated based on the same percentage for using the loan amount. The interest does not change during the entire loan repayment period. With such a loan, the borrower knows exactly how much money to save from his salary.
The fixed interest rate can only change in accordance with the terms of the loan agreement or by agreement of the parties. In order to change the fixed interest rate, you will need to sign an additional document changing the terms of the loan agreement.
Floating interest rate– this is an interest calculation system that is “tied” to any money market indicator (there are three such indicators: LIBOR (London Interbank Offered Rate), MosPrime (Moscow Prime Offered Rate), Euribor (European Interbank Offered Rate). The first indicator is used if you take a mortgage in dollars, the second - in rubles, and the third - in euros).
A variable mortgage interest rate consists of two parts: a fixed interest rate (base interest) and a floating indicator, which, when added together, will make the final interest rate floating.
It is quite difficult to predict the value of market indicators (LIBOR, MosPrime and Euribor), which are subject to fluctuations, in the long term, so the borrower, when entering into a mortgage agreement with a floating rate, takes on a certain risk. The borrower will need to continually monitor LIBOR or MosPrime to understand how their monthly loan payments may change. Data on these indicators are usually published on the websites of banks that provide such loans, as well as on the websites of some news agencies.
Basically, floating interest rates are used by financially savvy people who are willing to take on a certain financial risk, they are not afraid of a possible increase in rates, they can easily track and predict changes in rates, and they know how to benefit from this product. There is no clear answer to the question “What is better and more profitable?” The situation may turn out to be such that the Central Bank and the Ministry of Finance will overcome inflation, which will begin to decline. As a result of this, floating rates will be reduced due to the floating indicator. And then it would be more profitable to take out a loan at a floating rate. But the opposite can also happen - interest rates will begin to rise, and in such a situation it is just unprofitable to have a floating rate, because it would be possible to pay a fixed rate, which would be lower than the one formed by the market. Essentially, it is a matter of making predictions about the future, and the risk of choice is borne by the borrower.

Similar questions

Interview

All interviews

Analytics

All analytical articles

School of Financial Literacy

Lesson No. 262 The most pressing question that people usually ask when they learn that they are entitled to receive any payments is how much? How much should you pay and to whom? How is the social support program going in the Nizhny Novgorod region? The portal site asked these questions to the Ministry of Social Policy of the Nizhny Novgorod Region.

All classes

Press releases

Opening

Otkritie Bank together with the service for small and micro businesses “Accept a card!” offers acquiring to entrepreneurs at a rate of 0.99%. This became possible thanks to the boxed product “RKO + Acquiring”, which is necessary to reduce commissions when making non-cash payments.

All press releases

reports

25.04 In recent years, Sberbank has been one of the leaders among Russian companies in terms of investment in digital services. The development of digital channels and products is a strategically important task for the bank, the basis for creating a positive customer experience and building the deepest possible relationships with clients, noted Sergey Alimov, manager of the head office of Sberbank in the Nizhny Novgorod region.

Russia is discussing the issue of resuscitating floating-rate mortgages

In Russia, they are discussing the issue of reviving mortgages with a floating rate. At the end of last year, the leadership of the Agency for Housing Mortgage Lending (AHML). At the end of October, First Deputy Prime Minister of the Russian Federation Igor Shuvalov instructed the Ministry of Finance and the Ministry of Construction, together with the Central Bank of the Russian Federation, AHML and a number of leading Russian banks, to prepare proposals for state subsidization of mortgages with a floating rate tied to the key rate of the Central Bank or inflation.

The Ministry of Construction is considering the possibility of introducing a floating interest rate on mortgages from 2016 to maintain the volume of loans issued. However, already in November, Deputy Minister of Finance of the Russian Federation Aleksey Moiseev stated that “a floating mortgage rate with state support, if introduced, should not be tied to inflation.” “If it is tied to inflation, it is destructive for all participants in the process, including banks,” Moiseev emphasized.

What is a variable rate

Floating/variable interest rate is a loan rate, the amount of which is not fixed, but is calculated according to a formula determined by the agreement. As a rule, it is tied to rates on the interbank market, for example to MosPrime - the indicative rate for providing ruble loans on the Moscow money market.

To this rate the bank also adds its own fixed percentage. Depending on the terms of the contract, the rate may be revised both daily and at other agreed times, for example monthly. The time intervals through which the bank revises the floating rate are called interest periods.

Meanwhile, a variable rate for the mortgage lending market in Russia is not an innovation - it was included in some banking products before. “It was and is used by many banks, although in 2014-2015 it was much less common,” recalls Irina Pavlova, head of the internal control service of DeltaCredit Bank. DeltaCredit previously had products with a floating rate, but they were not in great demand and were closed. “They were not in high demand, since they were only available for loans in foreign currency and were initially one of the riskiest types of lending,” says Kristina Shulgina, head of the mortgage and loans department at NDV-Real Estate.

Experts believe that floating rate offers are unlikely to provide significant competition to standard offers on the market. “The fact is that a borrower who has chosen a loan program with a fixed rate knows how much he must pay the bank every month. This means that you can clearly plan your mortgage expenses, which is especially important during periods of economic instability,” explains Kristina Shulgina.

The benefit of a mortgage loan does not depend on the type of lending: fixed rate or floating. “The benefit no longer depends on the type, but on the size of the interest rate. But in general, a fixed rate gives a clear understanding of the size of the monthly payment for the entire loan term. With a floating rate, it is almost impossible to predict the dynamics of the index to which it is tied. This complicates the assessment of a client’s solvency for the bank and budget planning for the clients themselves,” says Irina Pavlova.

According to experts, a person who takes out a mortgage may face unpredictable expenses. “This is due to the fact that such a rate consists of two parts - a fixed base interest and a floating index (most likely, we will be talking about the ruble MosPrime), which is always in dynamics. For comparison, at the beginning of this year the index was 23.52%, in June - 13.42%, in November - already 11.82% (within 6-10% a few years earlier). That is, borrowers who take out such a mortgage run the risk of receiving unpredictable and higher-than-expected payments, and this is a direct path to the appearance of arrears on mortgage debts,” explains Kristina Shulgina.

However, there are combination mortgage products on the market. The difference between combined rates is that the rate is not fixed for a year, as with floating rates, and not for the entire loan period, as with fixed rates. So, according to Irina Pavlova, DeltaCredit Bank now has a product with a combined rate - the first five years the rate is fixed, then the remaining period - from 7.75% + Mosprime 3M. “This product was in great demand among our clients in 2008-2014; in 2015, clients prefer a fixed rate,” she reports.

Sergey Velesevich; photo Alexander Ryumin (TASS)

Fixed means constant. Consequently, this rate is not subject to change and is valid for the entire period for which the specific loan agreement was concluded. That is, there is an established and constant scheme of regular interest accrual. It turns out that the most important advantage of a fixed rate is stability. The exact and final amount of interest is determined at the initial stage of registration of this or that. And then this data is written down in the loan agreement shortly before its immediate conclusion. The fixed rate, as a rule, cannot be changed - except for those cases that are fixed in the relevant agreement. The bank may well increase the interest rate if this is provided for by the terms of the concluded agreement. In other words, these actions of the lender are legal only if the loan agreement included a certain clause on the possibility of changing the amount of the current rate. Therefore, it is impossible to talk about the so-called complete “inviolability” of a fixed rate - in some situations it may change. Another positive aspect of this rate is the fairly simple procedure for calculating the full amount of the overpayment on the loan. Since the interest rate remains the same throughout the loan period, the borrower can therefore calculate the total cost of the loan. Mainly for this reason, the vast majority of borrowers take out various loans with a fixed rate. What then are the disadvantages of a constant rate? The fixed amount of accrued interest can, oddly enough, negatively affect the final cost of the mortgage loan. The thing is that this type of lending is included in the group of long-term ones - the average repayment period of a mortgage loan is about 15 years. During this time, rates on the financial market naturally fluctuate, and, as a rule, downward. And the borrower who took out a mortgage loan at a fixed rate has to pay it back at the same initially high interest rates. In such situations, borrowers most often resort to refinancing the current loan in order to reduce the amount of overpayment. Of course, the refinancing procedure is advisable not only for housing, but also for consumer lending.

Floating rate

The main difference between a floating rate and a constant fixed rate is that the former can increase or decrease at any time during the loan repayment. The value of the floating rate consists mainly of the central leading part and the so-called floating index. That is, the main components of this rate are both variable and constant indicators. Which in turn are directly dependent on the specific value operating in the corresponding market. However, the most important thing is the index - it increases or decreases the size of the variable rate. The current rate is changed, most often, once every six months - in strict accordance with the current index indicators. Although the permissible number of fixed interest rates is always specified in the loan agreement. Consequently, the bank can change the interest rate as many times as specified in the relevant agreement. The main advantage of taking out a loan with a floating rate is the opportunity to receive funds at a very favorable interest rate. Most often, the size of floating rates is slightly lower than similar indicators for fixed ones. The greatest benefit from a floating rate can be obtained when repaying a fairly long-term loan, including a mortgage. The negative aspects of floating rates include, first of all, the risk of increasing their size. As already noted, the value of the non-fixed rate depends on certain indicators in the lending market. Accordingly, the floating rate may increase as a result of some serious fluctuations not only in the Russian, but also in the world economy. Moreover, an ordinary consumer cannot predict possible changes, so a rate increase can be a very unpleasant surprise. And this, in turn, can significantly worsen the financial situation of the borrower and even lead to the formation of debt. Therefore, applying for a loan with a non-fixed rate is usually resorted to by people who understand the situation on the financial market quite well and have the necessary knowledge to forecast it.