In some countries such as the US, fixed-rate mortgages are far more common than variable rate, with the latter sometimes even seen as a bit of a scam. But in Sweden, it’s long been the opposite, with variable-rate mortgages dominating the market for a range of reasons.
One of those reasons is due to the current regulations, which heavily penalise consumers who pay off fixed-rate mortgages in advance, for example if they sell their house or want to change banks. Under these regulations, banks have the right to demand compensation – known as ränteskillnadsersättning – based on the difference between the rate agreed on the mortgage and the price of a basket of housing bonds at the time the loan is paid off in advance, known as the jämförelseränta or literally, "comparison interest rate".
If the comparison rate is lower than the rate you signed up for, you have to pay the fee. If it’s higher or equal to your current interest rate, you don’t need to pay.
These rules have been heavily criticised by the Swedish Financial Supervisory Authority (Finansinspektionen), which among other things argues that they mainly exist for the banks’ benefits.
Christina Sahlberg, from price comparison site Compricer, believes that these rules put a lot of people off taking out fixed-term mortgages, as they’re not sure how long they want to stay in their property and are afraid of having to pay high fees if they move early.
“Especially now, when fixed-term rates are lower than variable ones,” she told the TT newswire.
But according to the new proposal, consumers should no longer have to pay for the banks’ loss of future interest rate payments, and would only have to cover any costs that arise at the point when the mortgage is paid off.
Sahlberg sees this as a good compromise.
“The banks should be compensated for their costs, but not for any risks,” she told TT. “There shouldn’t be any incentive for people to leave a mortgage early just to profit from it, either. It gets too jumpy if people are constantly trying to time the market.”
How much would I save?
Let’s say you took out a five year fixed-rate mortgage in October 2022 with SBAB, when the interest rate was 4.61 percent, and you have a million kronor left on that mortgage, which otherwise would come up for renewal in October 2027.
SBAB's interest rate on five year fixed-rate mortgages at the time of publication in December 2024 was 3.11 percent, so well below the interest rate when the mortgage was taken out two years ago.
For the sake of these calculations, we’ll ignore amortisation – the amount of your mortgage you have to pay off each year, which varies between 3 and 0 percent – and just look at your interest rate.
If you moved house or switched to a new bank on the date this was originally published, December 9th, 2024, or just wanted to pay your mortgage off early, you’d have to pay your bank 36,545 kronor in interest rate compensation under the current rules. You can calculate the exact amount in your case on the website of the Swedish Consumers' Banking and Finance Bureau (Konsumenternas).
Under the new rules, you wouldn’t have to pay this compensation for lost interest at all, although you would still have to pay for any fees incurred during the administrative process of moving the loan to another bank or paying it off early.
If you took out a ten year mortgage at the same rate and time as the example above, your ränteskillnadsersättning would be even higher at 54,341 kronor, so the new rules will really benefit people locked into long-term fixed-rate mortgages and potentially make them much more attractive for new mortgage applicants.
When will it come into force?
The new bill hasn’t been approved in parliament yet. If parliament gives it the green light – and it’s widely expected to do so – then it would come into force on July 1st, 2025.
Sahlberg believes that the effect of the new law will be immediate.
“We’ll see more people going for fixed rates immediately, and that’s a good thing,” she said. “It could be a big societal change.”
“In Sweden, mortgage holders very often have variable rates, and that poses a serious threat [to the economy].”
A large proportion of households on variable rates means that Swedes as a whole are susceptible to changes in the interest rate, which cuts consumption levels when interest rates rise.
“The economy grinds to a halt. If more people have fixed rates, the economy will be more stable as we’ll be less susceptible to interest rates.”
She’s not worried about it affecting the banks, despite the fact that they will lose income from the new law.
“The banks already earn enormous amounts of money. If this meant that banks don’t get exactly the same amount of money as they do now, it will still be positive for society.”
Comments (1)