Here are examples of some parts of your finances that can be affected by the interest rate announcement and tips on how you can take advantage of the interest rate cut:
The Mortgage
If you have a variable interest rate on your mortgage, it can be directly affected by the news that the Riksbank is now lowering the key interest rate by another 0.5 percentage points. However, since the shortest fixed period for variable mortgages is three months, there is a certain lag. What determines when you will see a change in your interest costs are the terms that apply to your mortgage.
If you have a fixed interest rate with a longer fixed period, it will not be affected by a single interest rate announcement. Here, it is rather long-term interest rate trends, the international interest rate situation (and of course when your mortgage is renegotiated) that determine when the interest rate is lowered.
Similarly, other loans, such as car loans or credits, can be affected by the interest rate announcement. For some loans with variable interest rates, interest rate reductions can occur, but usually not as quickly or to the same extent as for mortgages.
Tips: What can you do to take advantage of the situation?
The prevailing market interest rate can affect the interest rate you are offered when your current mortgage rate expires. In other words, now that the interest rate is low and the Riksbank is opening up for further interest rate cuts, it may be a good time to negotiate the interest rate with your bank. Three tips are to compare offers from different providers, see if you can consolidate other loans, and bring information from the Riksbank’s interest rate announcement when you talk to the bank.
Variable or Fixed Interest Rate?
It depends on your situation and your view on risk. Both options have their advantages and disadvantages:
- Variable Interest Rate: Choosing a variable interest rate is popular. Historically, the variable rate has often been cheaper over time. However, it also involves some unpredictability regarding how your interest costs will develop.
- Fixed Interest Rate: Fixing part of the loan can be beneficial, for example, if you have small margins or want stability and predictability in your finances.
Savings
A lower interest rate can also affect your savings. Primarily, it can make a difference by reducing interest costs, which can actually mean more money in your pocket. It’s also good to keep in mind that a reduction in the key interest rate can lead to banks lowering their deposit rates. For you as a saver, this can mean getting a lower interest rate on your savings account, which in turn can make other investment options more attractive.
If you are saving long-term, funds with good risk diversification might be interesting to provide the opportunity for returns over time. However, always let your view on risk, your situation, and how long you want to save determine your choices. Also, remember never to invest money in funds or other assets linked to the stock markets if you cannot risk them decreasing in value. It’s better to keep this money in a savings account, even if the interest rate is low.
Tips: What can you do to take advantage of the situation?
If the interest rate announcement means you have more money left over and want to start saving, a good first step can be to build up a buffer. Money you can quickly access if something unexpected happens, like if the fridge breaks down or your car gives up. A guideline can be to try to save so that you have two months’ salary after tax as an extra security. Once the buffer is in place, it can be beneficial to think more long-term and start saving for retirement. After that, you might want to consider focusing on other goals like travel, birthday parties, or other investments.
