Mortgage with mixed rate: After all, how does it work?

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Mixed interest rate has been the most contracted regime in home loans.

The mixed interest rate regime in mortgage credit has been increasingly embraced by customers at the time of buying a house, as well as the most promoted regime by banks to attract new clients.  

This is because it is the ideal regime for those seeking a lower rate currently, being able to later go back to the variable rate when it is expected that Euribor values will decrease.

After all, what is the mixed interest rate on housing credit?  

But, after all, how does it work? According to Banco de Portugal (BdP), quoted by Notícias ao Minuto, "in loans contracted at a mixed interest rate, the parties agree that the loan agreement has a period where the rate is fixed, followed by a period where the rate is variable".

For example, "a 30-year housing loan may have a fixed rate for the first 5 years and a variable rate, indexed to Euribor, for the remaining 25 years".

So, during the period when the variable rate is in force, "credit institutions cannot review the value of the benchmark with a different frequency from the term of that same benchmark." In other words, "in contracts where the benchmark is the 3-month Euribor, the value of that rate can only be reviewed every 3 months," as exemplified by the BdP quoted in the news.

With this regime becoming a more chosen option by the Portuguese, banks have been betting on promoting new rates in this regime. Contrary to the Euribor rates which are close to 4%, there are banks offering mixed rates starting from 2.50% fixing the rate for short periods (1, 2, 3 years).  

"This, at a time when the option for completely fixed rates remains residual in mortgage contracts," reads the news article.

In the most recent reports of the Central Bank, there was a significant increase in new mixed-rate mortgage operations, rising from 16% of total new operations in December 2022 to 71% in December 2023.

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