Fixed mortgage, variable mortgage, repayment terms, Euribor, interest… There are many aspects that must be taken into account when deciding on the most advantageous mortgage.
The mortgage loan is the most common operation when acquiring a property. That’s why it’s important to know the keys to choosing a mortgage.
According to data from the National Statistics Institute (INE), for May 2018, the signing of mortgages to buy housing increased by 7.3% over the same month last year. Of the 31,166 mortgages signed in Spain, 40.6 percent were fixed-rate mortgages.
If you are considering buying a flat or a house and you are going to apply for a fixed or variable mortgage, it is important that you try to negotiate good conditions with the bank and that you value all the factors that influence the bill you will pay.
The first thing you have to do before applying for the fixed or variable mortgage is to study the viability of the loan. Knowing how much money you need and how you are going to pay it in order to check if you are able to make the payment is fundamental.
Things to Consider When Choosing a Mortgage
The first thing you should take into account are the initial expenses: notary, registration, appraisal, opening commission, insurance…
Nor should you forget that, in most cases, the amount of the loan cannot exceed 80% of the assessed value of the property. There are some exceptions in which banks can finance up to 100% of the appraised price.
Once you have verified that it is possible to face the loan, you will have to decide which conditions are the most convenient for you.
In the first place, you will have to define the term in which the amount will be returned, usually between 15 and 30 years. The longer the term, the lower the monthly instalments, but also increases the amount paid to the bank at the end of the mortgage due to interest.
Fixed or variable mortgage
Before deciding on a bank, you should carefully consider which one offers the best terms and the lowest interest rates. Choosing the right bank will save you a lot of money.
There are two types of interest rates: fixed and variable. In the fixed mortgage the amount paid each month is always the same, although the interest is usually higher.
Although they used to be less common, according to the latest INE data, fixed-rate mortgages now account for 40.6% of those signed in Spain.
The remaining 59.4% of mortgages are granted, according to the INE, with a variable interest rate. This means that the bill to be paid each month is reviewed periodically, every year or semester, and the amount changes according to a reference index.
The most common to calculate variable mortgages is the Euribor, which reflects the price of money set by the European Central Bank. Other indices are also used, such as IRPH or CECA, but they are less convenient because they are higher.
In addition, at the interest rate established by the reference index, each bank adds a differential. Thus, the most common way of expressing the interest on an account is, for example, Euribor+X%. However, this interest does not reflect the total amount of the monthly payment.
To find out this amount you have to look at the Annual Percentage Rate (APR), a percentage that includes interest, fees and other mortgage expenses.
Commissions and insurance when taking out a mortgage loan
Another aspect that should be assessed, as they vary greatly from one bank to another, are the commissions. Most banks require the payment of an opening fee of a percentage of the total mortgage. Cancellation fees are also charged for paying the loan before the agreed term, either in full or in part.
If the property you want to buy is already mortgaged, you can choose between negotiating new loan conditions with the bank, known as novation, or changing banks. In this case, the entity that is left may charge a subrogation commission, which may be around 1%, although it is the seller who should pay it.
When comparing the conditions offered by different banks and savings banks, it is important to look at the additional requirements for granting a mortgage loan. The most common are the direct debit of your paycheck or receipts and the purchase of credit cards.
Don’t Be Cheated on Mortgage Loans
Most entities also sell fire insurance, multi-risk homeowners policies and life insurance for very long mortgages. It is important to know that the law does not oblige you to take out any type of insurance to obtain a mortgage loan.
In fact, this is one of the controversial points of the new Mortgage Law that has not yet seen the light. According to article 15 of the law, banks cannot force their customers to purchase additional products as a condition for obtaining the mortgage, unless it entails a benefit for the customer as the reduction of interest.
Documentation You Need to Apply for a Mortgage
At the time of submitting the loan application, the bank will require a series of documents: DNI, last payrolls or VAT and personal income tax payments (for the self-employed), last income tax return, purchase contract, registry verification and last IBI receipt.
All these data will be used by the bank to carry out a risk study, that is to say, what guarantees exist that the money will be returned. The study is carried out according to the repayment capacity of the holders of the loan through the income they generate through their payrolls or businesses.
This means that the bank will only grant the mortgage to people with stable and sufficient income, not only to pay the bill each month, but also to cover their basic needs.
Financial Intermediation: Ask for help from a professional
For this reason, and in view of the growing difficulty in accessing mortgage loans, in recent years the figure of the financial intermediary has been born. The Tecnocasa Group has a financial intermediation network, Kìron, whose professionals offer their clients a personalized financial study to help them obtain the fixed or variable mortgage that best adapts to their specific case.
Once the loan is approved to the applicants, the mortgage is signed at the same time as the deeds of sale, in the presence of a notary and the bank representative. It is important to be attentive to the reading of the contract to make sure that what has been agreed is being signed.