September 19, 2021

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Now comes the interest rate hike - you need to do this to save thousands of kroner

Now comes the interest rate hike – you need to do this to save thousands of kroner

On September 23, Norges Bank will announce its latest decision on key policy rates. The central bank has announced that interest rates will be raised in September, probably again in December.

Once the key interest rate is set, it will not take long for banks to raise mortgage rates. So you should expect more expensive mortgages in the future.

– Conditions in the economy are stabilizing. This indicates that while the key interest rate remained unchanged at zero in August, it would be right to raise the key interest rate quickly from the current level.

Key Interest Rate:

In short, the interest rate that banks receive on their deposits at Norges Bank is the key policy rate. Making changes to key policy rates is one of the most important tools of Norges Bank to control the Norwegian economy, and it affects you directly.

You will be particularly vulnerable if you have a mortgage or want to take it out. One of the most noticeable things for Norwegians when the key interest rate is raised is that the mortgage is becoming more expensive.

An increase in interest rates is actually a signal that the Norwegian economy is doing well, for example, leading to higher wage growth.

Shortly after Norway was hit by the Corona epidemic in the spring of 2020, Norges Bank cut its core interest rate to a historically low zero percentage.


Many have bad mortgage rates

Sindre Noss at Renteradar.no says most economists expect Norges Bank to raise key policy rates by at least one percentage point in the fall of 2022 and beyond.

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The key policy rate will be raised from zero to 0.25 per cent this September and 0.5 per cent in December. Nose says banks will follow suit by raising mortgage rates accordingly.

Renteradar.no is a service that helps customers mortgage at the best interest rate. They have business partnerships with Balder Bank, Nybygger.no and Nordea Direct.

The average interest rate among Rendezvous users is now 1.75 percent, which is in line with the figures that banks report to Norway.

– There are still big differences between customers, where the best interest rates are down to 1.3 percent, while the worst interest rates are more than two percent, Nose says, adding:

– 26% of first-time users signing in to our service have a mortgage interest rate of more than two percent. In our opinion, there are a lot. If you are a regular mortgage customer and pay interest and installments on time, your mortgage interest rate should be less than two percent.

15,000 kroner saved a year

In Rendezvous, many mortgage customers can reduce their mortgage interest rate by about 0.5 percent, thus neutralizing the incoming interest rate.

“Most customers can achieve an interest rate of less than two percent by negotiating an interest rate with the bank or transferring their mortgage to another bank,” says Nose.

He says older and loyal customers in particular often pay more for the mortgage. Despite the fact that they usually have better security for the loan and a lower loan-to-value ratio.

Cinderella Nose in Renderer. Photo: Interest rates

– Customers with more than two percent of the mortgage interest rate can often lower the interest rate to at least 0.5 percent. If they are willing to change banks, they can save even more, says Nose.

The half-percent low mortgage rate is not high, but for someone with a debt of three million kroner, it would save 15,000 a year.

– Bank economists have some savings tips to match, says Nose.

Clear advice

George Jensen, director of the Consumer Council, points out that there is no automation in mortgage prices following the growth in the key policy rate.

– It is clear when the key interest rate is lowered because many banks are only partially lowering mortgage prices or delaying following the central bank, Jensen says.

He believes that as a consumer you should not simply accept that the bank is making your mortgage more expensive as the key interest rate is now rising.

– You need to use your consumer power and already start a conversation with your bank today about the terms of the mortgage. There is little reason to be loyal to your bank.

Director of the Consumer Council, George Jensen.

Director of the Consumer Council, George Jensen. Photo: John Drikway Tolfesson

The director sees the interest rate hike as a good opportunity to examine the market and find out who has the best offer, and see how the various banks are adapting to the change in Norges Bank.

No matter what offer you receive from your advisor at the bank, the Consumer Council provides clear advice to all:

– Check the offer against other banks’ offers. Regardless of whether you go for fixed or floating interest rates, you need to know the market and see if another bank can give you a cheap loan. Bigger debt, you still have to save, Jensen says.

– Takes less time than many people think

In the service of the Consumer Council Accountingportlan You can compare credit rates with fixed and floating rates and choose the one that works best for you.

– Contact your bank to compare loan prices. Ask them to match the best offer you can find on the portal and negotiate the cheapest price. If the bank does not want to match, you can easily switch to a cheaper provider and save money, Jensen says.

He says many Norwegians are very loyal to their bank and often do not check enough whether they can save on negotiation or exchange.

Finding the time and energy to sit down and review is not always easy, we understand it, but it takes much less time than many people think, says Jensen, adding:

There is a difference between the providers and there is no reason to stay in a customer relationship where you do not get the best prices or terms. Check, negotiate and serve on a regular basis – so you don’t have to pay more than you owe.

Nominal and effective interest rate

History has shown that choosing a loan with a floating interest rate usually pays off, but if you can predict, a loan with a fixed interest rate may be right for you.

If you have a NOK 1.5 million loan with a fixed interest rate, Finansportalen’s overview shows that choosing a cheaper fixed interest rate offer than the more expensive one and saving one month is NOK 660.

Sbanken’s head of communications, Christian K., said there was a relatively large attendance of mortgage applicants by 2021. Says Friedheim. Now his main tip for mortgage applicants is to look at the differences between nominal and effective interest rates.

Sbanken's Head of Communications, Christian K. Fredheim.

Sbanken’s Head of Communications, Christian K. Fredheim. Photo: Sbanken

– The difference is greater than you think, and you can save several thousand a year, says Friedheim.

The nominal interest rate is the interest rate you pay on the loan, while the interest rate you actually pay when fees and other expenses are added to the calculation. It is therefore pertinent to compare the effective interest rates of banks.

– In addition, customers should look at whether there are additional or “hidden” fees with the loan, and whether “profits rise as the spin turns,” for example when you enter into contracts that require you to buy many of the bank’s other products, says Friedheim.