Fixing interest rates on loans

Given the current market situation and the inflation dynamics in the Eurozone, many clients are considering fixing interest rates on their loans. Despite indicating a slowdown, inflation persists above the intended level, posing challenges for decisions regarding interest rates.

Inflation and interest rates

Inflation in the Eurozone continues to be high despite noticeable deceleration. Dealing with the stubborn rise in core inflation makes decisions on interest rates challenging. Additionally, geopolitical uncertainty, the threat of a food crisis, and the growth in wages and earnings of companies can exert pressure on prices in the future. While the European Central Bank (ECB) does not expect inflation to reach the targeted level before 2025, the question is whether there will be a new round of interest rate hikes.

Reference interest rates

Reference interest rates play a crucial role in determining borrowing costs. However, since January 1 of this year, legal and regulatory adjustments related to introducing the euro have resulted in the inability to negotiate a variable interest rate with the National Reference Rate (NRS). Euribor has replaced the NRS.

Fixed or variable interest rate

It is essential to consider the type of interest rate you choose. With a fixed interest rate, your repayments stay the same, unaffected by fluctuations in the market. On the other hand, with a variable interest rate, repayments can increase or decrease depending on movements in reference interest rates such as Euribor. Decision on Fixing Interest Rates

The decision to fix or not fix the interest rate on a loan depends on the type of loan, the share of annuities in the budget, the assessment of the financial situation, and the loan’s maturity. Banks offer the option of fixing the interest rate, and consulting with a personal banker can help make an informed decision.

Conclusion

Although the current situation indicates a moderation of inflation, unforeseen events can cause changes in the market. The decision to fix the interest rate on a loan requires careful consideration of personal financial goals and risks. Regardless of the choice, staying informed and regularly monitoring market conditions is essential to adjust financial strategies accordingly.