The majority of home loans in Estonia have floating interest rates pegged to the Euribor, or Euro Interbank Offered Rate, and fixing rates hasn't been a popular move. As a result, Estonian borrowers have very much felt the impact of the soaring Euribor over the past year and a half.

Even so, Swedbank continues to discourage its customers from fixing their rates.

"We haven't recommended fixed interest," acknowledged Anne Pärgma, head of housing loans at Swedbank. "With contracts with so-called floating interest rates, borrowers have more flexibility in making changes to their contract, and it may be cheaper too."

According to Pärgma, the majority of their loan contracts are signed with floating interest rates pegged to the six-month Euribor. Should a customer want to fix the rates on their loan, they can do so for a five-year period.

"Rather few clients have opted for fixed interest," she added.

Even over at SEB, fixed-rate contracts only account for a fraction of their housing loan portfolio – around 3 percent – and the rest are floating-rate. SEB, however, doesn't have a negative view of fixing interest rates.

Sille Hallang, head of private banking at SEB, said that they have been offering customers the opportunity to fix interest rates for more than five years already.

"Fixing the base rate offers our clients the assurance that the size of their loan payments won't change during their chosen period," Hallang highlighted.

At SEB, customers can fix interest rates on home or mortgage loans for a period of up to five years. In this case, the fixed interest rate consists of a customer's individual interest margin and a fixed base rate, calculated based on the quoted interest rate for euro loans on international financial markets. Fixed interest rate amounts change daily, and depend on the length of the fixation period.

Giving an example, Hallang explained that if a customer had signed a 30-year home loan contract on Monday with a risk margin of 1.6 percent and tied interest to a floating interest rate, such as the six-month Euribor, their total margin would have amounted to 1.6 percent plus 3.789 percent, or 5.389 percent.

If they had, however, fixed their interest rate for a two-year period instead, their total margin would have equaled 4.876 percent – and for a five-year period, 4.44 percent.

"Whether an unfixed rate or a fixed rate for an agreed upon period is the best solution is up to each borrower to decide," Hallang said, acknowledging that either one could prove expedient for the borrower, depending on the situation on the money market and changes in base rates.

"It should be borne in mind, however, that in an environment of falling base rates, a client may potentially continue paying a higher interest rate through the end of their agreed upon interest fixation period," she added.

Fixed interest rates do come with their own limitations, however, For example, they cannot be applied when utilizing a loan in stages, such as with construction loans, as banks typically cannot offer loan resources at the same rates over an extended period.

According to Hallang, it's also worth taking into account the fact that in the event of a drop in market interest rates, changing the terms of one's loan contract, such as paying off the loan early or switching to a floating interest rate, may incur additional costs for the borrower.

According to Maarja-Maria Aljas, head of the SME segment at SEB, interest in fixed-rate loans has not increased among their business clients.

"There are customers who hedge the risk arising from interest rate hikes via various other products, such as interest rate derivatives, but generally speaking, interest in fixing [rates] is low," Aljas said.

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