| DEFINITION
When you apply for a mortgage, you have to take some items into account.
In a hypothecary loan, we may find a basic difference from the rest of the loans: ´the guarantee of the monthly payment is the property´. A loan document is constituted by a Notary and registered in the Registry of the Real Estate Property. In case of non-payment by the buyer, and as the payment guarantee is the own house, the judge would auction the property for the payment to the financial organization, that is to say, the bank.
TYPES OF MORTGAGES
Types |
Description |
Disadvantages |
Fixed interest |
The quota all along the mortgage will always be the same. |
The interests are usually higher than in the other types. |
Variable interest |
The most usual ones.The interests fluctuate depending on the official price of money in the market. It is usually revised every 6 or 12 months. The rates are lower and the terms are longer. |
The rates in the market may rise and make the percentage we are paying for rise. |
Mixed Interest |
It is a mixture between the two previous types: fixed and variable interests. |
If the interests decrease you do not get any benefits. |
The fluctuating mortgages normally have low rates during the first months. After 6 or 12 months the index of reference plus a differential are applied by the bank. This reference is calculated by the most important banks, taking into account the price of money in the market. There are several:
ROUND OFF
Depending on the agreed percentages, some banks make a sum up to a round number in the resulting amounts after the corresponding revisions.
EXAMPLE
We are granted a variable interest mortgage, reviewable every 6 months, with an initial interest of 3% and a differential of 1.25%.
If we assume that the Euribor reference will be 2.38% in 6 months, that means that our fee will be recalculated and the seventh month we will have to pay the Euribor index plus the agreed percentage, that is to say, 2.38 + 1.25. The final amount, 3.63% in this case, will be summed up to a round number ( 3.75%) by the bank.
The resulting quota will last for the next 6 months up to the next revision. This method will be applied all along the agreed time term for the mortgage.
TERM
The terms for the mortgage vary from 5 until 30 years. When you exceed the term of twenty years, you pay for a lot of interests and the decrease of the monthly fee is not very significant. Experts advise not to go beyond a twenty years period
PRINCIPAL
The financial organizations usually grant until 80% of the value of appraisal of the property in a mortgage. The appraisal is the valuation of the house carried out by an independent professional who must fulfill certain requirements established by the Law. This person will be an architect or technical architect belonging to a Society of Appraisal of Goods. In some cases, and when you own other properties or have guarantors, you may be granted up to 100% of the appraisal.
RATES And COMMISSIONS
All hypothecating loan entails expenses and commissions. The most significant ones are shown below:
| Commission of Opening |
It is paid to the opening of the loan. Usually it is around 1% of the principal. |
Appraisal |
It is paid to the concession of the loan previously. This around 180 €. |
Paying-off comission or advanced cancellation. |
It is only paid either in case of a partial payment in advance of the mortgage or a cancellation of the whole amount. It is about 1%. |
It is compulsory to add an obligatory fire insurance, the cost depends on the insuring company.
TAXES
Basically there is a tax that there is to pay with a mortgage:
Documented Legal transactions (AJD): |
We normally pay 1% of the principal in the Valencian Community |
TOTAL EXPENSES IN A TRANSACTION WITH MORTGAGE:
The whole expenses of a mortgage are calculated in the example below.
Let us suppose that we are granted a loan of 90000 euros. The initial commission will be 1%, cancellation 1%, Euribor 1%, 20 years term
| Initial commission |
900 € |
Appraisal |
180 € |
AJD |
900 € |
| Expenses Notary's office |
± 600 € |
| Land Register expenses |
± 600 € |
The total amount would be 3180 euros. When we use the sign ´+` means ´approximate`, not exact.
In addition, we should sum up the expenses for the I.V.A. taxes, that is to say, 7% of the amount appearing in the deed of the property.
CALCULATE YOUR OWN MONTHLY PAYMENT
You can calculate your own monthly quota taking into account the amount of money you need, the time terms and the type of interest. Please, use the application below which is called ´French system`.
Do not forget to calculate a comfortable final amount for you. The quota should not be higher than 35% of your total incomes. |
