Earlier this week, a new repo rate decision came from the Riksbank and they have then decided to keep the interest rate at -0.50 per cent. Sweden’s economy seems to be moving in the right direction, but you are still cautious, mainly because there is so much political concern around the world. The forecast for the repo rate also says that it appears to be low interest rates for a fairly long period to come.
It was not entirely unexpected that the Riksbank chose to keep interest rates at the same low level as before. When the previous decision was made, they said that it is not unbelievable that they could lower the interest rate further, but they have not done so yet. However, they still say that they are prepared to lower more if they feel it is necessary.
Their inflation target is the most important, and they aim for inflation of 2 percent. The forecast is that this target will be achieved sometime at the end of 2018. Other things are looking good in Sweden with strong economic activity – high growth, lower unemployment and rising inflation. Had it not been for the strong concern about what could happen in the outside world then perhaps the Riksbank could have thought of raising the interest rate somewhat.
This with political unrest and uncertainty around the world is probably based primarily on Donald Trump. He is an unpredictable factor that can affect the whole world and also Sweden. He has already begun his work to get through a number of rather controversial decisions and there may be more prospects ahead.
Low interest rates in the future
The Riksbank has set a very low repo rate and it has been at a negative level for a long time now. However, it looks like it will remain low for several years to come. Their own forecast says that the interest rate may even be lower in 2017 and at the beginning of 2018 they expect an interest rate of -0.53 percent.
However, sometime in 2018 there may be increases and in the first quarter of 2019, interest rates of -0.02 per cent are expected. One year later in early 2020, the forecast says the interest rate will be +0.49 percent. This means that we will probably have a negative interest rate in early 2019 – which would be the next two years. Even though the interest rate then goes up to plus, it can still be counted as low for another one or two years.
So the summation is that you can expect very low interest rates for at least a couple of years and fairly low interest rates for three or four years. After that, it is harder to say what will happen, but it is conceivable that the interest rate will rise at a fairly slow rate.
How to do with the mortgage?
Low interest rates mean that mortgages will continue to be cheap. It looks to be very stable for two or three years to come, so you don’t have to worry so much. One thing to keep in mind is that you can advantageously try to save some extra money now that the interest rate is low so that you have an interest buffer until the interest rate level rises.
When it comes to the question of whether to tie up your loans now when the interest rate is low, the answer is that variable interest rates are usually cheaper but that it is obviously not wrong to tie up your loans if you think it is worth paying a little extra for that security. It is usually more expensive with fixed interest rates but you get a little extra insurance, which some people think is nice.
There is no huge difference between the variable interest rate and fixed interest rates with a term of one, two or three years. So it is quite good to tie the loan in such a short time without it costing so much extra. However, as I said, we have just found out from the Riksbank that interest rates are expected to be very low in the next three years, so it is not very likely that mortgage rates will go up so much within this time period.
If you are going to tie up your mortgage then it may be a longer term, for example five years or more that is interesting in such cases.
However, interest rates are also a bit higher. They are on average around 2 percent instead of around 1.65 percent. It should be borne in mind that if you have a loan of SEK 2 million, 0.2 percent is about SEK 4,000 a year in interest expenses.
So if you pay around 0.4 per cent more each year, quite a few thousand extra a year goes to the interest rate. Of course, it all depends on how big a loan you have and how much you repay, etc., but with such large loans as mortgages there will always be some money. If you want, you can choose a floating interest rate and the fixed interest rate, and then you save that money to a buffer that can be used the day the interest rates become higher.
You should also see if you might be able to bargain on your mortgage.
When the repo rate went down, the banks did not lower their mortgage rates to the same extent, so their margins have actually become higher. Thus, there is more room to lower interest rates in addition to what the list rates show. It is probably possible to get down to 1.2 – 1.4 percent interest on their mortgage, even though the average interest rate for all banks is currently 1.67 percent.
If you can manage to bargain 0.2 – 0.3 percent on your interest rate, it will be many thousands of dollars a year, and the bigger the loan you have, the more you save. It is quite a lot of money that can be saved just by negotiating its interest rate. It should be borne in mind that it is not possible to do so with a fixed interest rate since that interest rate is fixed until the maturity period expires.
When you bargain on your mortgage, you can look up what you can get interest rates from a number of different banks.
You do not necessarily need to change your bank, but just use this comparison as a way to put some pressure on your existing bank. Also review the strengths of your finances and why you are a stable and good customer. Then you should be able to lower your interest rate a little.
You can also use the average interest rates that the banks presently present to show that you yourself are above the average. This is an easy way to bargain on their interest rates. If others can get a lower interest rate, should you be able to get it too? The interest rate can of course be set on the basis of personal conditions such as finances, the size of the loan and such, but little should be done now that the banks’ margins are so large.