IN FIGURES: How could lower interest rates affect your Swedish mortgage?
After two years of rising inflation and ever-increasing interest rates, things are looking brighter, as experts predict rates may start to drop this year. How could this affect your mortgage?
How much are interest rates expected to drop by?
Major Swedish bank Swedbank predicted in mid-January that the country’s central bank, the Riksbank, would start to lower key interest rates in May, dropping the so-called policy rate three more times throughout the year.
The policy rate has stood at 4 percent since September 2023, and Swedbank predicts that it will drop to 3 percent by the end of 2024. After that, it predicts that there will be two further drops in the first half of 2025, landing on 2.5 percent by the end of the year.
This doesn’t mean that interest rates on mortgages will drop as low as 2.5 percent by the end of 2025, but we can (probably) expect them to be substantially lower than they were at the end of 2023. The policy rate doesn't directly control mortgage rates, but there's an indirect effect.
Here’s how much Swedbank expects mortgage rates to fall over the next two years:
I'm on a variable rate. What does this mean for my mortgage?
It obviously depends on the size of your mortgage, but here are a few examples.
Let’s say you have a 1 million kronor mortgage.
At a 4.8 percent interest rate, you’d be paying 4,000 kronor a month in interest, before tax deductions are factored in.
If you have to amortise your mortgage, your total monthly cost would be higher, but let’s just look at interest rates for now.
If interest rates dropped to 3.4 percent, you’d be paying 2,833 kronor per month instead. That’s a saving of over 14,000 kronor over 12 months.
What if your mortgage is larger?
Let’s say you have a 2 million kronor mortgage. Your monthly interest cost at 4.8 percent interest is 8,000 kronor a month, dropping to 5,667 kronor a month at 3.4 percent – a saving of over 2,300 kronor a month or almost 28,000 kronor a year.
The larger your mortgage, the more affected you are by interest rates. Let’s look at someone with a mortgage of 3 million kronor.
Here, your monthly interest payment at a 4.8 percent interest rate is 12,000 kronor a month. An interest rate of 3.4 percent, however, would give you a monthly payment of 8,500 kronor per month, which would be a saving of 3,500 kronor a month or around 42,000 kronor a year.
Obviously, interest rates will change gradually over time – they’re not going to just drop 1.4 percentage points overnight – but this should give you an idea of how much less you’ll have to spend on mortgage payments by the end of 2025, if Swedbank’s predictions are correct.
I’m on a fixed-rate mortgage which will be renewed between now and 2025. What’s going to happen to me?
Well, the bad news is that although rates are dropping, your mortgage costs will still probably go up quite significantly, as rates on fixed-rate mortgages were around the 2 percent mark from about 2015 to early 2022. Although rates are predicted to start dropping in 2024 and 2025, they're unlikely to be as low as this.
Let’s say you’ve been on a 5-year fixed 2 percent rate which is about to be renewed. According to Swedbank, the 5-year rate was around 3.9 percent in December 2023, and is going to drop just 0.1 percentage point between now and December 2025, meaning you can expect your interest costs to roughly double, no matter if you’re renewing now or in 2025.
Let’s calculate that with some example mortgage figures.
For someone with a 1 million kronor mortgage, your payments at 2 percent interest are around 1,667 kronor, rising to 3,259 kronor at 3.9 percent interest.
A 2 million kronor mortgage would rise from 3,333 kronor a month to 6,500 kronor a month, while a 3 million kronor mortgage would go up from 5,000 kronor to 9,750 kronor a month.
If you renew on a 3-year fixed-rate mortgage, you’d be paying 4.15 percent now, or 3.8 percent if you renew at the end of 2025.
For a 1 million kronor mortgage, your monthly cost if you renew now would rise from 1,667 kronor (2 percent rate) to 3,458 kronor (4.15 percent rate).
Your costs would rise from 3,333 kronor to 6,917 kronor on a 2 million kronor mortgage, while someone on a 3 million kronor mortgage would see costs increase from 5,000 kronor to 10,375 kronor. Those renewing at the end of 2025 at a 3.8 percent rate would see costs increase to 3,167 kronor, 6,333 kronor or 9,500 kronor respectively.
If you were to switch to a variable rate mortgage (which, technically is a 3 month fixed-rate mortgage), you’d be paying the rates listed in the section above.
Again, none of these calculations factor in other monthly costs like your housing association fee, your amortisation or other property costs, so your entire monthly fee will be higher than these figures in most cases.
These figures also do not take account of the ränteavdrag – tax deduction for interest payments – which you'll usually get back in your tax return in April, if you're eligible.
What can I do if I want to switch to a different fixed term or a variable mortgage?
If you don’t do anything, your mortgage will renew automatically at a 3-month variable rate.
This means that if you want to stay on the same fixed term mortgage or change to a shorter or longer term, you'll need to contact your bank in advance and let them know, although you can also do it at any time once you're on a variable rate mortgage.
They should contact you before your rate changes to inform you about this, and in some cases you can state in advance that you want to be put on a fixed rate mortgage again before it renews.
Do make sure, however, that you negotiate whatever rate you're put on to make sure you're getting the best deal, even if you want to switch from a fixed rate to a variable rate mortgage. You can often split up your mortgage into multiple smaller mortgages on different rates, too, if you want to avoid having to renew everything at once in the future.
Remember if you want to leave a fixed rate mortgage early you will usually have to pay a fee to the bank to make up for the amount of money they would have earned from you in interest on the old mortgage. This is known as ränteskillnadsersättning, but you can often avoid it if you're moving house by transferring the old mortgage over to the new property.
Finally, bear in mind before you make any decisions on your interest rate that things can change, and financial experts' predictions aren't always right. Make sure if you're buying a property or planning to change your interest rate payment that you've done the calculations and you can afford your interest rate payments even if they start to increase again.
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How much are interest rates expected to drop by?
Major Swedish bank Swedbank predicted in mid-January that the country’s central bank, the Riksbank, would start to lower key interest rates in May, dropping the so-called policy rate three more times throughout the year.
The policy rate has stood at 4 percent since September 2023, and Swedbank predicts that it will drop to 3 percent by the end of 2024. After that, it predicts that there will be two further drops in the first half of 2025, landing on 2.5 percent by the end of the year.
This doesn’t mean that interest rates on mortgages will drop as low as 2.5 percent by the end of 2025, but we can (probably) expect them to be substantially lower than they were at the end of 2023. The policy rate doesn't directly control mortgage rates, but there's an indirect effect.
Here’s how much Swedbank expects mortgage rates to fall over the next two years:
I'm on a variable rate. What does this mean for my mortgage?
It obviously depends on the size of your mortgage, but here are a few examples.
Let’s say you have a 1 million kronor mortgage.
At a 4.8 percent interest rate, you’d be paying 4,000 kronor a month in interest, before tax deductions are factored in.
If you have to amortise your mortgage, your total monthly cost would be higher, but let’s just look at interest rates for now.
If interest rates dropped to 3.4 percent, you’d be paying 2,833 kronor per month instead. That’s a saving of over 14,000 kronor over 12 months.
What if your mortgage is larger?
Let’s say you have a 2 million kronor mortgage. Your monthly interest cost at 4.8 percent interest is 8,000 kronor a month, dropping to 5,667 kronor a month at 3.4 percent – a saving of over 2,300 kronor a month or almost 28,000 kronor a year.
The larger your mortgage, the more affected you are by interest rates. Let’s look at someone with a mortgage of 3 million kronor.
Here, your monthly interest payment at a 4.8 percent interest rate is 12,000 kronor a month. An interest rate of 3.4 percent, however, would give you a monthly payment of 8,500 kronor per month, which would be a saving of 3,500 kronor a month or around 42,000 kronor a year.
Obviously, interest rates will change gradually over time – they’re not going to just drop 1.4 percentage points overnight – but this should give you an idea of how much less you’ll have to spend on mortgage payments by the end of 2025, if Swedbank’s predictions are correct.
I’m on a fixed-rate mortgage which will be renewed between now and 2025. What’s going to happen to me?
Well, the bad news is that although rates are dropping, your mortgage costs will still probably go up quite significantly, as rates on fixed-rate mortgages were around the 2 percent mark from about 2015 to early 2022. Although rates are predicted to start dropping in 2024 and 2025, they're unlikely to be as low as this.
Let’s say you’ve been on a 5-year fixed 2 percent rate which is about to be renewed. According to Swedbank, the 5-year rate was around 3.9 percent in December 2023, and is going to drop just 0.1 percentage point between now and December 2025, meaning you can expect your interest costs to roughly double, no matter if you’re renewing now or in 2025.
Let’s calculate that with some example mortgage figures.
For someone with a 1 million kronor mortgage, your payments at 2 percent interest are around 1,667 kronor, rising to 3,259 kronor at 3.9 percent interest.
A 2 million kronor mortgage would rise from 3,333 kronor a month to 6,500 kronor a month, while a 3 million kronor mortgage would go up from 5,000 kronor to 9,750 kronor a month.
If you renew on a 3-year fixed-rate mortgage, you’d be paying 4.15 percent now, or 3.8 percent if you renew at the end of 2025.
For a 1 million kronor mortgage, your monthly cost if you renew now would rise from 1,667 kronor (2 percent rate) to 3,458 kronor (4.15 percent rate).
Your costs would rise from 3,333 kronor to 6,917 kronor on a 2 million kronor mortgage, while someone on a 3 million kronor mortgage would see costs increase from 5,000 kronor to 10,375 kronor. Those renewing at the end of 2025 at a 3.8 percent rate would see costs increase to 3,167 kronor, 6,333 kronor or 9,500 kronor respectively.
If you were to switch to a variable rate mortgage (which, technically is a 3 month fixed-rate mortgage), you’d be paying the rates listed in the section above.
Again, none of these calculations factor in other monthly costs like your housing association fee, your amortisation or other property costs, so your entire monthly fee will be higher than these figures in most cases.
These figures also do not take account of the ränteavdrag – tax deduction for interest payments – which you'll usually get back in your tax return in April, if you're eligible.
What can I do if I want to switch to a different fixed term or a variable mortgage?
If you don’t do anything, your mortgage will renew automatically at a 3-month variable rate.
This means that if you want to stay on the same fixed term mortgage or change to a shorter or longer term, you'll need to contact your bank in advance and let them know, although you can also do it at any time once you're on a variable rate mortgage.
They should contact you before your rate changes to inform you about this, and in some cases you can state in advance that you want to be put on a fixed rate mortgage again before it renews.
Do make sure, however, that you negotiate whatever rate you're put on to make sure you're getting the best deal, even if you want to switch from a fixed rate to a variable rate mortgage. You can often split up your mortgage into multiple smaller mortgages on different rates, too, if you want to avoid having to renew everything at once in the future.
Remember if you want to leave a fixed rate mortgage early you will usually have to pay a fee to the bank to make up for the amount of money they would have earned from you in interest on the old mortgage. This is known as ränteskillnadsersättning, but you can often avoid it if you're moving house by transferring the old mortgage over to the new property.
Finally, bear in mind before you make any decisions on your interest rate that things can change, and financial experts' predictions aren't always right. Make sure if you're buying a property or planning to change your interest rate payment that you've done the calculations and you can afford your interest rate payments even if they start to increase again.
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