The interest rate applied on a mortgage is of fundamental importance because it influences the amount of the most important cost item of a home loan, i.e. interest. In fact, although the costs related to mortgages are numerous (notary, insurance, appraisal, preliminary costs, etc.), it is the “interest” item that really makes the difference. An extra percentage point on a 200,000 euro mortgage with a thirty-year term can translate into thousands of euros more to be repaid.
Therefore, if you intend to request long-term financing to purchase a property, it is advisable to understand “how” first home mortgage rates work, i.e. what the differences are between variable rate and fixed rate and what the forecasts are in this regard, in order to choose with greater awareness.
Mortgages: difference between fixed and variable rate
When analyzing home loans, two macro categories are typically distinguished: fixed rate and variable rate.
In a fixed rate mortgage, the interest rate agreed upon at the time of signing the contract will never change, regardless of the trend of the mortgage market. The repayment instalment, generally monthly, will always be the same for the entire duration of the loan.
This is an option that protects the debtor from rate increases and allows precise financial planning. On the other hand, it does not allow you to take advantage of any rate reductions.
In a variable rate mortgage, the interest rate follows the trend of the reference market: if the ECB decides to raise rates, the mortgage installments will be more expensive, while otherwise they will be less expensive.
This choice favors the debtor when the market goes through a downturn, while penalizing him when rates rise. This option makes planning more difficult because, especially in the long term, interest rate fluctuations are numerous and can be significant.
The forecast for the last part of 2025
Generally speaking, after the peaks recorded in the two-year period 2023-2024, the first part of 2025 recorded some declines, both in terms of fixed and variable rates. Currently the latter are slightly lower than the former.
If we consult the various sources that deal with the topic of “mortgages”, we can deduce a certain optimism on the part of the experts and, consequently, the forecasts relating to the last months of 2025 are positive. In other words, it seems reasonable to expect further cuts, but no one can be certain of what will happen from October to the end of the year, also considering the fact that the current geopolitical situation is rather complex and we know how sensitive the markets are in this regard.
Fixed rate or variable rate?
Is it better to choose a fixed rate mortgage or an adjustable rate mortgage? There is no right answer to this question, since, by definition, mortgages are long-term financing. At the moment, as mentioned, variable rates are lower than fixed rates, but the situation could reverse within a few months.
The most sensible advice that can be given in this regard is to request advice from an expert, such as an accountant or a mortgage consultant from your credit institution.
Furthermore, it must be taken into account that there are tools such as renegotiation or subrogation of the mortgage, which could allow you to obtain more advantageous conditions.
