Fixed or floating interest rate?
All debtors can choose between fixed and floating interest rate, alternatively a mix of both.
Floating interest rate
Interest on the loan is payable at the interest rate on government certificates which have redemption periods from zero to three months. An additional half per cent per annum is charged to partially cover administrative costs and losses. The interest rate is set for two months at the time.
Floating interest rate advantages
• Your interest costs will decrease according to reductions in general interest level.
• You have more options concerning changes in repayment plan.
• You may choose to change to fixed interest rate at any time.
Floating interest rate disadvantages
• Your interest costs will increase according to increasing general interest level.
• You are not able to predict your future interest costs.
Fixed interest rate
If you choose fixed interest rate, you must repay in accordance with the agreement for a period of 3, 5, 10 or 20 years. Your choice of length is limited to last date of repayment in your repayment plan.
Fixed interest rate advantages
• Your interest costs are predictable within the fixed agreement period.
• Your repayments of interest are set during the fixed agreement period, even if the general interest level increases in the same period of time.
Fixed interest rate disadvantages
• Your repayments of interest are set during the fixed agreement period, even if the general interest level decreases in the same period of time.
• You have less options concerning changes in repayment plan.
• There is a risk that you will have to pay a penalty fee in certain situations (see below).
Breach of fixed interest rate agreement
Extra repayments or redemption of the debt within the term of the agreement will incur a redemption penalty at a premium or discount rate. Transferring the loan to floating interest rate or to a new borrower will have the same consequences. The fixed agreement will continue for the residual loan.
What should you choose?
Whether you should choose fixed or floating interest rate depends on your financial situation and predictions of future interest level, based on current knowledge. By fixing your interest you will get security against an increasing interest rate within the fixed agreement period. As a main rule, floating interest rate has shown to result in lower interest costs than our offers on fixed interest during the same period of time, but this may vary. If you choose floating interest rate, you may change to fixed interest rate without any extra costs.