The interest rates of indexed mortgages granted by Icelandic banks in 2004 will be reviewed in fall 2009, as regularly undertaken after five years, which means that the original interest rates of 4.15 percent may increase to 7.80 percent.
According to finance consultant Ingólfur H. Ingólfsson, this is a likely scenario, which means that a monthly down payment of an ISK 20 million (USD 305,000, EUR 201,000) mortgage for 40 years could increase from ISK 100,000 (USD 1,500, EUR 1,000) to ISK 159,000 (USD 2,400, EUR 1,600); by 59 percent, Morgunbladid reports.
Ingólfsson said he has already noticed that mortgages with growing interest rates are causing troubles for home owners.
“Indexed alterable interest rates are ridiculous when you think about it, a 40-year loan with a review provision after five years. It means that the indexed interest rates only remain stable for five years though the indexation has already secured the loan granter certain real interests no matter if the earth and sky collapses,” Ingólfsson said.
Ingólfsson recommended that in light of current circumstances young people who are starting out should rather rent than buy housing for the first few years. “People are not throwing their money out the window if they rent for the first three to five years.”
“Considering the indexed mortgages that are being offered today, home owners acquire their own share in their apartments so slowly in the first few years that it is next to nothing. One could even say that they are losing money to begin with,” Ingólfsson concluded.