Mortgages can bear interest at fixed or variable rates. In most cases, people choose the first option, which gives them the assurance that the interest rate will not change after the chosen period.
What affects mortgage fixation
The mortgage payment will be the same throughout the fixing period and you can better plan your financial expenses. Banks commonly offer mortgage fixation periods of 1 year, 3 years, 5 years and 10 years. Some banks also offer fixations of 15 years or more. In this case, however, you should expect higher rates than for mortgages with a 3- or 5-year fixation. The most common mortgages today are those with a 5-year fixation. Mortgage rates can move up and down over time. If you are expecting interest rates to rise over the longer term, it is worth considering fixing your interest for a longer period. Again, if rates are expected to fall, a shorter fixing period may be preferable, giving you the opportunity to negotiate a better rate at the end of the fixing period.
Tip: Read what to do after the end of your mortgage fixation in our article.
Alternative to a fixed interest rate
Banks also offer mortgages with variable (floating) interest rates. In this case, the interest rate is based on the price of money on the interbank market (PRIBOR), which is announced by Česká národní banka. This option is advantageous in periods of falling rates. The disadvantage is that the amount of the mortgage payment will change more frequently.