New range of mortgages from Arion Bank

In recent weeks, Arion Bank has reviewed the terms of its mortgages due to the uncertainty that arose in the housing loan market following the Supreme Court's judgment in a case against Íslandsbanki. We are also awaiting the Supreme Court's decision in a case concerning the Bank’s indexed loan terms, with a verdict expected in mid-December.

We are now offering our customers two types of mortgage:

Non-indexed mortgages with fixed interest rates for up to three years – loan term up to 40 years

Customers can take out a mortgage with non-indexed interest rates that are fixed for up to three years. The loan term can be up to 40 years. In the third year of the fixed interest period and for the remainder of the loan term, customers may request refinancing without incurring a prepayment fee and choose from the loan options available at that time. If the loan is not refinanced before the end of the fixed interest period, the Bank’s variable interest rates available at that time will apply, plus a fixed interest margin specified in the loan terms.

Indexed mortgages with fixed interest rates for three or five years – loan term up to 30 years

Customers may also take out a mortgage with indexed interest rates for up to 30 years, with the option of fixed interest rates for three or five years. In the final year of the fixed interest period and for the remainder of the loan term, customers may request refinancing without incurring a prepayment fee and choose from the loan options available at that time. If the loan is not refinanced before the end of the fixed interest period, higher fixed interest rates for the remainder of the loan term will apply, as specified in the loan terms.

Why an interest margin or higher rates after the fixed interest period?

Customers may ask to refinance their loans in the final year of the fixed interest period and throughout the loan term without incurring a prepayment fee. The Bank will contact customers before the fixed interest period ends to discuss available options. In recent years, Arion Bank customers have tended to refinance their mortgages after three to five years.

A predetermined interest rate increase after the fixed interest period provides predictability for borrowers and is necessary to protect the Bank from financial risk if the borrower does not refinance the loan after the period ends. Loans with terms of 30 or 40 years carry different risks for the Bank from loans with terms of three or five years, as many things can happen over several decades that affect the Bank’s financing costs. Central Bank rates or other interest benchmarks alone do not protect against such risks.

Our aim is to offer the most favourable terms initially and the most manageable mortgage repayments possible

We believe that an interest margin or rate increase after the fixed interest period is the best approach given the current uncertainty in the mortgage market. These two loan types are designed to offer customers the most favourable initial terms and the most manageable mortgage repayments possible, within the constraints imposed by current legal uncertainty while awaiting further Supreme Court judgments.

Further information on Arion Bank's mortgage loans can be found here.