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Remortgaging and refinancing in Spain

After putting up for years with a bad mortgage deal I have finally researched the market and made the move. I've waved goodbye to one spanish bank and went to a better one. I'll be blogging my 2p worth of knowledge I got from the experience.

Let's talk fixed interest rates
Thursday, February 17, 2011 @ 10:18 AM

Obviously the key question is will they go up or down. Obviously? I think it doesn't matter in the long run. Even if you manage to get a decent fixed rate right now it won't be a favourable number if it's fixed for more than 3 years. The best I could find here in Spain is Barclays 2.99% (let's call it 3% shall we) for 3 years, then Euribor + 0.59 (the latter depends on various personal circumstances, so it's an approximate value). It's not bad at all, and it does seem that all banks have raised their base interest rates in the last 6 months by a huge amount in percentage terms. However, there is no saving us from higher payments now or in the near future, so isn't it better to get a deal with lower variable rate, which do exist if you shop around.

So what can we do? I am about to refute my own argument above - this is how one arrives to hopefully the best solution. It appears that a huge spike in interest rates is imminent. They are already evident in prices of commodities such as wheat and cotton. They've gone parabolic in international exchanges. They are usually a good predictor of higher rates, not because of an improving economy, as the powers that be would have you believe. It's because there is so much bad debt out there which will not be repaid - from individuals AND whole countries - that lenders now simply demand a higher interest rate for their loans to compensate for their risk. So whether Euribor will rise or not in sync with the commercial rates is immaterial in the short run. It will have to follow because otherwise Member States will not be able to refinance unless they offer higher interest rates for their bonds. Or, print the money to pay their debts. This latter is what commodity traders know, so they ramp up the prices in anticipation of what they know will be diminished value of each individual dollar/euro.

So if a huge spike in interest rates is imminent (according to my simple brain) then I would go for the best fixed rate deal I can find for 2-3-4 years, and then the variable rate can be planned for later. I am preparing myself for the possibility of double digit interest rates. Calling Barclays now!

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