Mortgages in Spain
The mortgages in Spain are the most common vehicle to access a property. Buying a property in Spain, due to its high price, unless you have savings enough to deal with the whole payment, makes necessary to apply for a loan or credit that will normally be secured by a mortgage on the property purchased.
- Mortgages in Spain: Features
- The interest rate
- The amount borrowed
- The Term
- Other conditions
- Bank fees
- Mortages in Spain: The procedure
- Mortgages in Spain: Costs
- Mortgage taxes
- Land registry
- Mortgages in Spain: Ancillary costs
- Property appraisal
- Administrative manager
- Morgages in Spain: Changes on the fly
- Morgages in Spain: Non-payment
Mortgages in Spain: Features
It is highly recommended that you do not rush when choosing the bank. Before you decide, compare carefully the different offers on the market and see which is best suited to your capabilities and needs. A simple way to compare mortgages is through the Annual Percentage Rate (Tasa Anual Equivalente TAE). The TAE is a summarized figure of the price charged by the bank lending us the money, including interest, fees and other expenses.
whether you decide to hire a mortgage, you must carefully analyze the characteristics of the different offers. Particularly, it is convenient compare the total cost (interest, bank fees and expenses) of each. Also take into account the following factors:
The interest rate
The interest rate is the 'price' charged by banks for giving a loan. This interest is calculated on a percentage or rate on the outstanding amount. Banks in Spain are free to set the interest rate they wish, although they tend to reduce it if the mortgage has good guarantees (for example, being on the primary residence) and if the amount is less than the value of the mortgaged property. The interest rate may be fixed or variable, as is held constant or not over the life of the mortgage.
For the mortgages in Spain in the modality of variable rate, the interest rate is modified throughout the period of amortization. This modification depends on the future evolution of the index taken as a reference, which is an indicator that reflects the price of money in the market. The variable rate is usually expressed as the sum of the reference index and a constant percentage (margin or spread).
For example, The interest rate on a mortgage is Euribor plus one percentage point (Euribor+1%) . That means that throughout the life of the loan you will pay what marks the Euribor index at the time of the revision of the mortgage in Spain (variable component) plus one percentage point (fixed element).
The amount of future payments may change, up or down, as do the index of reference at the time of revision. Some banks in Spain put limits on downward and / or rise in index of reference. Under equal other conditions, you may find more interesting, logically, the offer does not limit the possible reduction of installments. In any case, be aware of the risk incurred by hiring variable rate mortgages: if rates rise, you may be in trouble.
Nowadays, the most of the mortgages in Spain are with variable interest rate, but the mortgages loans with fixed rate still exists. In this variety of mortgage loans, the interest rate remains constant throughout the life of the contract, and therefore you know from the beginning the total amount of interest you have to pay. That is the big difference with variable rate loans: no uncertainty about future installments.
Since you do not assume the risk of increasing the price of money, interest on fixed-rate operations are usually higher than with the variable rate. Furthermore, the longer the loan period is, the higher the interest rate use to be. Normally mortgage fixed rate loans are usually much shorter than variable rate.
The amount borrowed
In the event you choose a variable rate with the mortgage in Spain, you should be cautious and ask for a lower amount to which allows your borrowing capacity, since a rising on interest rates may cause an increase in periodic installments in the future.
Usually, banks grant mortgages in Spain up to 80% of the appraised value of the property to be mortgaged, although this can vary depending on factors like the aportation of additional guarantees, your financial capacity, whether it is the primary residence, other financial debts...
Being a loan of a large amount of money, the repayment term of mortgages in Spain is usually long, reaching terms over 40 years. The deadlines are limited by the age of the borrower, being difficult to obtain a mortgage in Spain, with a deadline beyond retirement age.
In addition to the financial characteristics of the different offers, you should consider whether you are interested in those mortgages in Spain offering an interest rate more favorable in return for your engagement to the bank, in the form of insurances (home, to guarantee payment in case of death or long-term unemployment, permanent disability, etc.) and some other products (credit cards, pension plans, etc.)
It is paid to the bank in reward on their tasks related to the formalization and disposal by the customer on borrowed funds. This fee is usually a percentage of the amount borrowed and is paid once, when the mortgage is signed. Some banks in Spain also charges a fee (comision de estudio) for the work to evaluate the viability of the operation.
The bank also may ask fees for specific services other than the study and / or disbursement. For example, if you ask a check for borrowed capital is issued, you will pay the fee.
By modifying or changing the conditions or the guarantees: The bank may require a fee, in the case of modify one of the mortgage elements, for the tasks carried in modifying the content of the contract and / or risk analysis of the changes made, such as the acceptance of a new debtor, in the case of purchasing a house in Spain from a developer - what is called subrogation debtor.
Novation: A novation is nothing but a modification of loan terms, but have the advantage in Spain of benefit from a lower costs in notary and Land Registry fees, such is the case when are agreed upon one or more of the following modifications: Enlargement or reduction of borrowed capital, Changing the term, the interest rate, the provision or modification of personal guarantees.
The bank fee in this case will be the agreed with the bank. However, in the mortgages in Spain at variable interest when the novation only refers to the extension of the loan term, the commission is limited to 0.1% of the outstanding principal.
Partial cancellation fee. Banks typically charge a fee in Spain on the amount repaid in advance on the mortgage.
Cancellation fee. It is paid in case of payment in advance of the entire amount borrowed.
In both cases, Partial and Total cancellation, the amounts that banks may charge as cancellation fee shall not exceed:
- 0.5% of prepayments, if the amortization occurs within the first five years of life of the mortgage, or
- 0.25% of prepayments, if the amortization occurs later than 5 years.
And, if it is agreed with the bank a lower fee, the compensation to be paid will be the agreed.
Compensation due to risk of interest fee. This fee may be required by the bank in case of total cancellation of the mortgage, where it had been agreed. Not entitled to ask on mortgages in Spain at variable interest whose revision occurs every 12 months or less (almost all mortgages in Spain). Beware in the case of mortgages in Spain with fixed rate interest, is commonly applied but has to be agreed at the mortgage deed, and only is possible if the cancellation is a loss for the bank, which usually occur when market rates are, at the time of cancellation, lower than what you are paying.
Mortages in Spain: The procedure
Having chosen the bank for the mortgage, it is required to give us, before committing with, a Personalized Information File (Ficha de Informacion Personalizada FIPER) in which the bank details the financial terms of the loan offer. Therefore we have in our hands a document containing clearly the conditions that will rule the mortgage to be accepted.
By doing so, the bank will ask for a provision of funds to carry out the next steps.
Already committed to a bank, it will make the property to be valued by an appraisal company. The value set in the appraisal report is the basis on which the bank will give us the mortgage.
In the meantime the bank is doing all the due diligence on the property to be mortgaged, checking the charges and encumbrances, in order to leave the property free of prior liens before granting the loan.
Later, when the whole checking is done (on the property and on the aplicant), the bank must give us the binding offer (Oferta vinculante). Its contents must match exactly the conditions of mortgage deed, including the amount borrowed.
The mortgages are formalized in Spain by signing a deed before a notary. The draft document can be revised three days prior to the date of signature.
In case of existing prior liens on the property mortgaged, the administrative manager appointed will take a provision of funds, discounted from the price received by the seller, and will do what is needed for its cancellation.
The administrative manager also will have taken a provision of funds from us in order to carry out the bureaucratic process, paying the taxes on our behalf and inscribing the deeds at the Land Registry.
Mortgages in Spain: Costs
The mortgage cost are well explained in the chapter about the costs buying a property in Spain. This is the list:
The mortgages in Spain must be in a public deed. The notary cost is based on the same fees than buying a property.
The mortgages in Spain, being in a public deed, are obliged by the Stamp duty tax. Its taxable base will be total mortgage liability, which means the amount borrowed plus interest, plus several expenses. It varies depending the bank. The tax rates also varies depending the Autonomous community where the property mortgaged is located.
The mortgages deed, once the taxes are paid, must be inscribed at the Land Registry.
Mortgages in Spain: Ancillary costs
There are a number of additional expenses you have to pay, for which the bank will demand a provision of funds. You have the right for nominate and elect, by mutual agreement with the bank, the company that will carry out the appraisal of the property to be mortgaged, and which company will take over the administrative management of the loan. You can also agree with the bank what insurance company, if any, will cover the risk of the loan.
Usually the bank only accepts the assignment of these services to professionals or companies trusted by them. However, if you brings a certified appraisal, not expired (last six months), made by an approved appraiser, the bank may not bill you for a new appraisal.
To achieve adequate warranty for the loan to be granted, the property to be mortgaged should be appraised. In the Spanish mortgage market, it requires a qualified professional to do determine what is the value of the property mortgaged. The assessed value of the property generally limits the amount of the loan.
In Spain they are authorized to do this kind of Valuations some appraisal companies, which may or not be independent of banks. These companies are authorized and supervised by the Bank of Spain to operate. Their requirements are mainly intended to ensure that these companies have adequate professionals and rigorous appraisal procedures.
The valuations that these appraisal companies perform for the mortgage lending must respect some specific rules with the purpose of setting a price for each property, being a prudent long-term value, although differences (above or below) with the market price of the property at the time of valuation. The valuation rules have the aim to encourage prudence of appraisals so that the guarantees for mortgage loans are solid and durable.
Typically, appraisal costs are paid by the customer. Having the right to receive a copy of the appraisal report.
Needing a mortgage to buy the property in Spain, the bank requires that all paperwork and tax payment is made by someone they trust. Therefore, the cost of the Administrative manager company is imposed by the bank, even if you are capable to do the paperwork by yourself. Administrative manager is in charge of the tax payment on your behalf and takes all the necessary steps on the way to the registration of the purchase and mortgage deeds at the Land Registry.
Their fee is not regulated and may vary from company to company. The figure is around 300 € cost per notary deed (purchase + mortgage).
With the mortgage loan, is mandatory that the property morgaged is insuranced with a policy that covers at least the fire risk. Sometimes the bank also imposes other types of insurance such as home insurance, life insurance and disability and payment protection.
Morgages in Spain: Changes on the fly
Once the amortization plan of the mortgage is underway, it would be possible, if this has been agreed, modify it by prepayment of a part or even the whole outstanding debt (total or partial cancellation). In both cases, must take into account the bank fees for early cancellation agreed in the mortgage deed.
The early cancellation can have two different effects, as agreed upon with the bank: reduces the amount paid in the outstanding periodic installments (pay less). Or brings forward the termination of the mortgage loan (it ends before).
If what occurs is the early total cancellation of all outstanding debt, the loan closes. In this case, it is advisable that you ask the bank the cancellation of the mortgage in the Land Registry.
There is also the possibility to novate or modify the loan contract, in agreement with the bank, to set another benchmark interest rate, or reduce the applicable spread on it, or change the term, increase the amount borrowed, or in general to improve financial conditions applicable to the loan or adjust it for customer needs.
These amendments are better formalized in a public deed before a notary, later registered at the Land Registry (It is not mandatory but, when in doubt, what is recorded in the Land Registry is prevalent).
Another way to modify the mortgage in Spain is by novating the person who is holding the mortgage. It is the socalled Subrogation in the mortgage. When we are selling a property in Spain which is mortgaged, always is a good idea try to offer to the buyer the possibility to subrogate in the debtor position. This agreement will save a lot of money in the form of taxes and expenses to both parties, the buyer and the seller.
Morgages in Spain: Non-payment
whether you are late in paying the mortgage installments, the bank will charge the late payment interest, whose rate is usually much higher than ordinary interest. The method of calculating the default interest is contained in the morgage deed.
In addition, banks may charge a fee for claiming unpaid installments, the amount will be also reflected in the contract.
The bank establish in the mortgage deed the clause that allow them to finalize the mortgage loan in advance if you fail to pay one or more installments. Then, the bank can claim, judicially or extrajudicially, the borrower the amount of capital outstanding and regular and default interest accrued until that date.
All loans are guaranteed by the present and future assets of the debtor. But in the case of mortgages, if you do not pay your debt, then the bank can make the mortgaged property be sold to recover the outstanding amount. And if the sold price is not enough, the process will continue with the rest of the debtor assets.
Nowadays, due to the amount of properties in Spain that are come to this situation, the banks are opting by the repossession of the properties.
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