Interest Rate Roof

Our interest rate roof option offers our non-indexed customers a safety net when interest rates rise.

How does the interest rate roof work?

  • You choose the interest rate roof yourself. The amount must be over 7.5% of the annual interest rate.
  • If interest rises above the roof you have requested then the interest due is altered to accommodate this. The outstanding interest (the difference between the interest charged according to the interest table and the interest rate roof you have requested) is added on to the principal amount.
  • The outstanding interest is paid during the remainder of the loan period i.e. distributed payments.
  • The interest rate roof is suitable for those who want to secure even payments, despite any interest rise.

Examples of the effectiveness of the service under different circumstances:


A.

When the interest is lower or equal to the roof, then the amount is calculated using the interest table.

Example: Interest rises from 6.15% to 7.40% and the roof is set at 7.5% (annual interest)

=> all interest is paid and nothing is added to the principle amount

B.

If interest rises above the roof you have requested then the interest due is altered to accommodate this. The outstanding interest (the difference between the interest charged according to the interest table and the interest rate roof you have requested) is added on to the principal amount. Example: Interest rises to 8.5% and the set roof is 7.5% (annual interest)

=> The paid interest is 7.5% and the remaining 1% is added on to the principal amount.

Pros and cons


Compare the pros and cons of the interest rate roof.

Pros

Cons

Reduces uncertainty and offers security

If the interest rises above the interest rate roof then the interest accumulates and is paid later

An easier option for those who choose the non-indexed loan route, despite higher interest rates

The principal amount will rise beyond initial expectations if the interest rate is higher than the roof

Quicker asset growth when compared with indexed mortgages- if the interest rate develops in the same way as the rate of inflation

The total cost of the mortgage rises when the principal amount rises

The customer decides the roof and can adjust payments according to payment ability at any given time

The long-term debt-burden increases when outstanding interest is added to the principal amount, but payments are distributed across the entire outstanding loan period

A first lien mortgage which is within 70% of the rateable value of the property. The lowest interest rate roof on a supplementary loan (from 70% of the rateable value and up to 80% of the market value) on a property is higher, or the difference in interest between a mortgage and supplementary loan (according to the bank's interest table at any given time). The minimum interest rate roof specified in the registered appendix is valid for 10 years after the contract is completed and then becomes null and void.

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