Has your interest rate rebate become less secret?
Hopefully you have a certain interest rate discount on your mortgage, so the interest rate you have is a good bit lower than the interest rate your bank has set. Last winter, in principle, all major banks raised their floating rate by around 0.2 per cent as a result of the Riksbank’s first rate hike in a long time. As a result, your interest rate rebate may have become smaller without your understanding.
All banks report their interest rates and this is what they assume when setting your mortgage interest rate
However, it is not this interest rate that you normally get. The vast majority of people negotiate the interest rate or may in some way receive an interest discount. This is clearly seen in the banks’ average interest rates that they present each month. This average interest rate is more than 0.5 percent lower than the interest rate of most banks.
The average interest rate is an average of what people have actually received in interest when they have obtained new mortgages, moved their loans or renegotiated with their existing bank. But since it is a variable interest rate, you do not always have exactly the interest rate you get at the time of the negotiations.
If we say that the interest rate is 2 percent and you get 1.5 percent in mortgage interest, then the interest rate may change over time as variable interest rates do. What is constant is your interest rate discount, ie how much lower your interest rate is compared to the interest rate. In this example, the interest rate rebate is 0.5 percentage points. If the bank raises its interest rate (which happened last winter when an increase of 0.2 percentage points became the reality with most banks) then your interest rate will go up by the same amount.
Since you still have the interest rate discount, your interest rate increases in principle from 1.5 to 1.7 percent. This arrangement is nothing strange with. That’s how it works with variable interest rates and there’s nothing to complain about or worry about. However, what has happened now is that the banks have made a slightly ugly rate hike.
How has the interest rate discount been affected?
As mentioned, the banks raised their variable interest rates for mortgage loans from around 2 percent to around 2.2 percent last winter. This happened after the Riksbank raised the repo rate / policy rate by 0.25 percent as the first of many upcoming increases over a number of years.
Many people felt that the banks did not necessarily need to raise their interest rates simply because the repo rate was raised given that they already have such high margins on mortgages. So they have room to keep interest rates down – but chose to go with the repo rate to make more money.
What has happened, however, is that this has had very little impact on the interest rates that people really get after they negotiate and receive their interest rate discount. Although interest rates went up by 0.2 percentage points, in the spring, interest rates remained at about the same level as before or perhaps even lower.
Previously, the banks could have a list interest rate of around 2 percent and average interest rates of around 1.5 percent and now that the new list interest rates are at 2.2 percent, the average interest rates still seem to remain below 1.5 percent. In principle, this means that banks’ interest rate hikes have not made any direct difference to what interest rates people really receive.
Your old interest rate discount is simply a little too small today
But this also means that interest rate discounts have increased. In the past, the discount was around 0.5 percentage points, but now they are around 0.7 percentage points (the difference between today’s list interest rate and the latest average interest rates). For anyone who has obtained new loans or renegotiated old loans, there is not much to think about here – but anyone who has retained their old interest rates and especially old interest rate discounts should take an extra look at their mortgage.
If you have an old loan with an interest rate rebate of 0.5 percentage points then you were previously just on the average interest rate and even though it is not a super good mortgage rate, it is still ok to lie around the average. Today, however, as banks have raised interest rates, 0.5 percentage points are not as good.
With a 0.5 percentage point discount, your new interest rate would be approximately 1.7 percent. This at the same time as the average interest rates appear to be around 1.45-1.5 per cent – which is the same as before or even slightly lower. In practice, this means that you have suddenly gone from lying like the cut to lying over, without having done anything at all.
Negotiate the interest rate to make sure you get a competitive interest rate
For this reason, it is important that you who have an existing mortgage also make sure to negotiate it. It is not enough to negotiate once and then leave it alone. Not even if you thought you got a good deal at that time.
Things happen and the banks raise their list interest rates when they get the chance. Then you have to be involved and make sure your interest rate is ok in relation to this. Right now, the banks have raised interest rates at the same time as they actually have very good margins on mortgages and they are clearly prepared to give you a larger interest rate discount than before.
It is above all those who are not so good at bargaining on their interest rates or who do not care about renegotiating old loans that may suffer and which then sit with a higher interest rate in the end, even though they do not need it. As long as you have a stable economy now as you negotiated the interest rate last time, you should now be able to get a larger interest rate discount so that you land where you should be.
It can be said that anyone who does not negotiate their interest rate and receives a larger interest rate rebate (which resets the banks’ latest interest rate hike) has in principle lost 0.2 percentage points on their interest rate rebate against people who bought mortgages or renegotiated their mortgages recently. This is not ok and you should therefore make sure to check your mortgage, so that your interest rate discount is also in line with the current interest rate situation.