The rate of interest is usually set in percentage terms; it may be fixed, which means it is the same for the whole duration of the loan, or variable, which means it is determined with reference to changing parameters that are set by objective, impartial criteria. For example, Euribor is an average quotation for variable rates calculated using objective criteria in the EU financial markets; while I.R.S. (interest instalments swap) is the financial reference parameter for establishing the cost of medium and long term fixed-rate operations. The rate may also be "mixed": this means that, at particular points in time, the interest rate changes from fixed to variable or vice versa. According to the contractual terms, that may happen once or twice during the term of the home loan, usually depending on a choice by the borrower after giving a prearranged term of notice.
The choice of a fixed or variable rate is a question over which the borrower exercises full discretion and has total responsibility: in general, those who prefer the former are persons who think the cost of money will increase during the term of the home loan; if that turns out to be the case, they will have made a good deal because their instalments will remain unchanged; but if instead the cost of money falls, they may find themselves paying “over the odds” without having, in contractual terms, any right to oblige the bank to modify the conditions of the home loan. Those who prefer the variable rate are usually persons who think the cost of borrowing may fall further and don't want to miss the opportunity of paying lower instalments; if, instead, the cost of money rises, the amount of each instalment will also increase. If one observes the financial market, the interest rate on a variable home loan is generally lower than the fixed home loan rate.
Interest on arrears is payable on a due but unpaid instalment until such time as payment is made. Interest on late payments compensates the bank for the delay in being able to use the money as compared with the due date and naturally worsens the borrower's debt position. If the unpaid instalment includes, as is usually the case, both capital and interest, the borrower ends up paying interest on the unpaid interest: that effect is valid if delayed payments are contractually foreseen.
The late payment rate is generally higher than the ordinary one, so as to discourage delays in payments; however, according to recent trends in regulations and jurisprudence, it may not be exorbitant to the point of excessively punishing the borrower. Care must be taken because in some contracts, in addition to interest on arrears fixed according to the rules, there are other items (commissions on outstanding debt, debt recovery expenses, etc.) that effectively achieve the result of increasing the amount the borrower has to repay.
Repeated delays in payment, or even the definitive non-payment of instalments, may lead to the loss of extended payment terms or cancellation of the mortgage for irreparable breach of contract.