The repo rate was changed to zero percent on October 27, 2014, thus nothing. The reason why they chose to lower interest rates to such a low level is that inflation has been lower than expected. In order to stimulate higher inflation and to reach the target of 2%, we have chosen to keep a very low repo rate and to do so for a longer period.
According to the Vicks Bank’s own message, it is believed that a long-term low interest rate may remain at zero interest rates until mid-2016. a longer time.
What, then, means a repo rate / policy rate of 0% for us individuals? Simply explained, the repo rate affects a number of different things and then perhaps the banks’ interest rates mainly. This means that when we borrow money or deposit money into a savings account, we get interest rates that are basically based on the repo rate level. When we have a low interest rate in Sweden, the banks’ interest rates will also be low (although they may not always be lowered to the same extent as the repo rate).
How the zero interest rate affects different types of loans
In principle, all loans are affected by a low repo rate, but this is especially evident on mortgage loans. We have had a fairly low mortgage rate for some time but now it has become a little cheaper. It is therefore a very good place to take a mortgage because you can get very low interest rates, down below two percent even.
In addition to being in a good position to take out a mortgage, you can also think about how to do with your new or existing mortgage. The classic question of whether to run at variable interest rates or to tie up your loan is always relevant and in such a situation it is almost even more interesting.
Choosing fixed or floating interest rates in today’s interest rate situation
The first option, which most people also choose, is to have variable interest rates. This is historically the cheapest option, since the variable interest rate is normally lower than if you tie up your mortgage. What advocates variable interest rates now is, firstly, that the interest rate is very low in general terms, but also that the Vicks Bank predicts that it will remain so long. Only in the second half of 2016 do they expect to raise the repo rate and this means that you can feel fairly confident of maintaining a low mortgage rate in the future.
What advocates fixed interest rates is that this is also very low right now, in some cases actually lower than the variable interest rate. Since it is so low now, it is generally a good way to fix the interest rate and then you also have the fact that the future is always a little uncertain. Certainly, the current forecast is that the repo rate will remain at 0% until mid-2016, but that can actually change depending on how inflation and Sweden’s economy develop in 2015.
With a fixed interest rate you do not have to worry about something happening and the interest rate unexpectedly goes up, so it becomes a greater security. The fixed interest rate is usually a bit higher than the variable rate just because it offers more security, which you have to pay extra for. Today, however, fixed interest rates are not directly much higher, so it is a good deal if you want to tie up your loan (as is the case with some banks, even a little lower than the floating rate).
Private loans and other loans
Mortgage loans are the loans that are most affected because it is a large loan that also becomes expensive in the long term. Of course, private loans are also affected, which will be a little cheaper. So it may be a good idea to take a private loan if you have been thinking about renovating or have something else you need some extra money for. Of course, car loans have also been affected by some of the low repo rate, so if you are thinking about buying a new car, this may be a good place to start.
Of course, you should always be careful about loans and make sure you always borrow within your financial ability. It is stupid to take out loans just because they are cheap as each loan increases on your total expenses each month. You must make sure you leave room in your finances to afford to pay all bills, including loans.
SMS loans and other fast small loans have not been affected at all by the low repo rate. This type of loan has never been so closely linked to the repo rate and is usually a bit more expensive, so there are less differences. So you cannot immediately say that it is better to take an SMS loan now than it has been before. A loan of this kind is generally a bit more expensive and is not recommended unless you have good margins in your finances so that you can calmly repay it.
Other things related to your personal finances that are affected by the zero interest rate
In addition to loans, other things are also affected by the policy rate being so low. A very good example is the savings account. Saving money in a savings account has previously been a good alternative that is very safe and generally stable. Nowadays, of course, it is still safe and stable, but it also gives very poor returns.
Like the interest rates for loans, the savings account’s interest rate is also linked to the repo rate. The lower the interest rate we have in Sweden, the lower the interest rates the banks offer on their various accounts. Since the interest rate is now at zero percent, this also means that the interest rate on savings accounts is almost non-existent. Many banks actually have zero interest rates there as well, which means that you get no return at all on your savings.
For this reason, it is important that you act and do something to get some return on your money. The first option is to actively look for a savings account with a little reasonable interest (there are a few still) and move their money there. However, it is not easy to find a sensible savings account in the current situation, especially if you want one that is covered by the deposit guarantee.
You can still get a couple of percent interest on selected savings accounts, but then you often have to leave the big banks to choose one of the slightly newer players who try to compete with sensible interest rates. If you want to do something a little different, the recommendation is to save in different types of funds, such as equity funds. There you can often find alternatives that are a bit more stable and that make a reasonable return, especially if you are willing to invest in a little longer term.
Other things that can be affected
Other types of interest rates may also be affected by a low repo rate. This can be a little bit of everything and depending on whether it is a loan or a fee based on an interest rate or something else it can have positive or negative consequences for you as a private person.
An example is the residual tax. In the past, it has been more advantageous to wait to pay the residual tax as long as possible because the interest rate that the Swedish Tax Agency charges is so low. Today, it is actually cheaper to pay in early as the Swedish Tax Agency expects an interest rate that has not been reduced to the same extent as other interest rates.
Investment forms such as Asset Insurance and Investment Savings Account are also affected by the low interest rate. Their fees are calculated on the basis of an interest rate and when that interest rate is low it will also be cheap to invest via these channels. Right now, it is therefore very advantageous to invest in both Asset Insurance and Investment Savings Account, but in the future when interest rates go up, it will also become more expensive and the requirements for returns will be higher in order to make a profit.