One of the most common loans in the market is the mortgage, since it is the usual way to finance a purchase as important as housing, mortgage loans are in demand. Mortgage is really a type of guarantee, which, unlike the guarantee, falls on a property. As is usually the case of mortgages to buy a home, be it usual or second home. In the case of the mortgage, it is the property itself that serves as a guarantee for the repayment of the loan. The use of real estate as collateral is due to the fact that in mortgages the amount to be financed is usually very high, such as when buying a home. So it is normal that the maximum guarantees are requested. In fact you can get mortgages without endorsement, but depending on the amount of the property to be financed as well as your financial profile (income, debts in Financial Credit Institutions other loans, etc.) you may not only offer the house as a guarantee, you need a personal guarantee.
Mortgages are the preferred product for banks, since they are very long-term loans (between 30 and 40 years) and require a strong bond for customers. That is why there are often wars between banks for giving the best mortgage to the market. In fact when Hireans a mortgage the normal thing is that the bank forces us to hire other products of great profitability for him, such as: life insurance, fire insurance, home insurance, credit cards, etc. In addition to having to open an account in the bank to be able to domicile the mortgage payments as well as our income (basically the payroll) to be able to meet monthly payments. That is why the mortgages of mavas, Bankor, Bankeria, Bankate, or Apobank, are usually cheap mortgages to attract customers to sell other products or lines of business that have these entities specialized in universal banking. Although perhaps the best bank for mortgage, since it has less expenses in branches than traditional banking, it is ing. The branch of the Dutch bank offers one of the most popular cheap mortgages. Although it is difficult to say if ing is the best mortgage in the current market or it was in 2014 and 2015. Because although it is among the cheapest mortgages, the truth is that there are other aspects when assessing a mortgage. That is why you have to determine which is the best bank for your mortgage and not so much if it is the cheapest one.
That is why it is essential that before Hireans a mortgage you have certain aspects clear and that to find the best mortgage you can make a comparison by helping you in an online search engine for cheap mortgages like the one we have in Crediterion. This will save you a lot of time as well as money. Anyway, when you find a cheap mortgage, make sure you pay using an online mortgage simulator that shows you the total monthly interest payment. Because that information is not usually given by any bank:
What is the most important when hire a mortgage?
When Hireans a mortgage there are many details to take into account, although many times the applicants focus only on the interest rate. Be careful because interest is not a good indicator when Hireans a mortgage. Keep in mind that the mortgage has more costs, in addition to the payment of interest, so it is essential that in order to make a comparison of the best mortgages in the market use the APR. That is to say, the annual equivalent rate, or real cost of the mortgage as an annual percentage, which in addition to taking into account the interest rate includes other expenses and commissions. So do not be fooled by offers from banks with very low interest rates, because it may be that their commissions are higher than other mortgages. Keep in mind that in the end the bank has to make money with the mortgage, and for this you can do so through a higher interest or a lower interest along with the collection of higher commissions or products linked to the mortgage contract ing. It is very common, and more so today, that the granting of a mortgage is linked to the contracting of products that have very high expenses or interests. As for example credit cards. And even many banks and financial institutions have chosen to create their own insurance companies to obtain a greater benefit with the sale of insurance linked to mortgages.
Therefore, you must take into account the following aspects when finding the best mortgage:
Interest rate: it is the price of the borrowed money, that is to say the payment that the bank receives for lending you the money to buy a house or another type of property. The interest rate is established in the form of an annual percentage that you will have to pay to the financial institution, and it is calculated on the capital of the mortgage that is pending return. The interest rate is usually not fixed, that is, it is not established to remain unchanged during all the years the mortgage lasts. Although in the market there are mortgages at fixed rates such as those of Kutxabank, mavas, ing, or Ibercaja. The most usual is that the interest rate is variable, so that the bank can obtain interest according to the situation at each moment of the market. And to know what is the variable interest in each moment of the life of the mortgage, what is called a reference index is established. In other words, a reference that is public and known by both parties, the bank and the owner of the mortgage. Before the entry of Spain into the euro, the MIBOR was used, but after the entry into the single currency it was replaced by the Interbank. Although some mortgages have also used other reference indices such as the IRPH. But what is the Interbank ?, because basically the definition is the cost of money for the bank, or more technically the cost to which banks lend money within the euro zone. Therefore, and more importantly, this means that the Interbank is fixed for any bank mortgage, so if you want to get a cheaper interest rate on your mortgage, you will have to negotiate very well the differential that is applied to the Interbank. And what is the differential? It is basically a percentage that is applied as a profit margin of the bank. Normally in a mortgage the differential varies depending on whether you want to buy a regular residence, a second residence, or a garage. Therefore, when comparing mortgages from different banks, it is important to give preference to those that offer a lower differential. Since the Interbank will be the same for all, and the interest you will pay for your mortgage will depend on the sum of the Interbank plus the differential applied by your bank.
Fee: the fee is the monthly payment of your mortgage and it depends on several elements. So depending on your monthly income you can pay a higher or lower fee. Normally banks usually establish that 35% of your gross income should cover over your mortgage fee as well as other personal loan or credit card fees. So it is essential that you take into account what would be the maximum fee you can assume with your income or together with those of the other mortgage holders. For example, if you earn 1000 gross euros per month, the bank will consider that you will not be able to pay a monthly fee of more than 350 euros. As we told you the share of your mortgage depends on several factors, the first one is the interest rate as we have seen before. But the other key factor for the quota is more or less large, is the duration of the mortgage. The longer the fee, the lower the interest rate or the amount you need to buy your flat.
Percentage of FinancierLow : it is a very important aspect, but more than anything in order to buy the house of your dreams. Keep in mind that in a mortgage loan the money that the bank lends you depends a lot on the real estate guarantee. That is, the home you offer as collateral in case you can not pay the loan. That is why they do not usually finance amounts that exceed the value of the guarantee. And to avoid that the price of the house goes down so much that it does not cover the amount of the loan. Banks usually give a maximum of 80% of the value of the real estate guarantee. That in the case of habitual residence or first residence, because in the case of other types of properties such as parking spaces or apartments on the beach that represent a second residence, the percentage can be reduced to 60% of the value of the real estate guarantee. How is the guarantee of a mortgage valued? Well, very easy. The bank requests an appraisal from a company specialized in real estate valuations. That taxation will have to pay you, so it is a necessary and previous expense to the granting of the mortgage. So the money that the bank will lend you as a mortgage, will be a maximum of 80% of the value of the appraisal of the property, be it a house, a flat, an apartment, a parking space, or a house. It is true that sometimes there have been circumstances in the market that made banks have to compete offering up to 100% FinancierLow on the appraised value. But they are situations of the market very isolated, and that in addition they can make expensive the mortgage by majors commissions or type of interest. So we recommend that you make the calculations of your mortgage with the maximum percentage of 80%. So the remaining 20% of the money to be able to buy the property you will have to put it from your own savings.
Commissions : is another of the typical financial expenses along with interest. The purpose of the commissions is to pay for certain administrative procedures that the bank performs, such as opening or canceling a mortgage. Normally, there is a certain capacity to negotiate with financial entities to agree on fees. In any case and just as it happened with the interest rate differential, it is important that they be as low as possible.
Related products : as we have said, Hireans a mortgage implies other complementary products that tend to have a higher interest rate or expenses. As for different insurance examples that force us to hire to get a mortgage. Sometimes these linked products can cause us to spend more money or even have to devote part of our income to these products, as happens with pension plans. So we advise you to be very critical with the linked products, to determine what you really need.
Flexibility : there are some mortgages of banks that allows to reduce the fees to pay less in certain circumstances. There are also some that allow the return of the capital already amortized, that is to say, re-dispose of the amount of the mortgage already paid to the bank. With this we would have a quick and easy to obtain personal loan. By not having to do almost paperwork or studies.
Mortgage clauses : undoubtedly one of the most important parts of the so-called “small print” when signing a mortgage before a notary. It is essential that you report and read the conditions well is that you sign. Because while some clauses are almost harmless, such as the ceiling clause that sets a maximum for the mortgage, others such as the ground clause can cause you to have to pay more for your mortgage. Since the ground clause does not allow you to benefit from certain drops in interest rates. So remember that before Hireans a mortgage, you must know the conditions that you are going to sign in the mortgage deed before a notary and do not forget to read all the clauses well before signing.
How to calculate a mortgage fee?
Calculate a mortgage fee is relatively simple but it is advisable to do it with Excel or another spreadsheet, since to do the calculation requires knowledge of financial mathematics and normal calculators can not perform such operations. The formula for calculating a mortgage fee is based on the so-called French loan. A method that is based on paying monthly installments that combine return of the capital of the mortgage together with the payment of the corresponding interest. The main characteristic of French method, used in the calculation of all mortgages. Is that in the installments of the first years, most of the payment corresponds to interest. While in the final years it is the other way round. This is due to the fact that in the French loan the monthly installments tend to remain fixed, for at least 12 months in variable interest mortgages. What favors a calendar of stable payments, that is, every month the same is paid. In order to calculate a mortgage quota with Excel or a financial calculator, it is essential to have the following information:
Capital or amount of money borrowed on the mortgage.
The term of repayment or the duration of the mortgage in years.
The interest rate of the mortgage, whether fixed or variable.
What commissions are there in mortgages?
As we saw in previous sections, commissions are another of the typical expenses that banks and financial entities charge for their financial management and services. Commissions are an aspect to watch over because they can make mortgages more expensive, and in some cases the commissions can even be abusive. That is why it is essential that you know which are the main commissions
The opening, ie those that are linked to the granting of the loan and that compensates for the services and initial administrative procedures performed by the bank’s staff. Opening fees are usually between 0% and 3%, and assume that the amount of money received for the mortgage is less. That is to say that instead of receiving the mortgage at 100% we receive 98% for example, if the opening commission is 2%.
The early amortization, ie the commission that penalizes the client to return more capital than the one fixed according to the mortgage payment schedule. If the mortgage holder returns the amount before the fixed amount, then the bank obtains lower income in interest. That’s why the bank charges a commission, to compensate for those lower revenues. That is why it is essential to look for a mortgage without early amortization commission, be it total or partial.
Cancellation fees are similar to early repayment fees. Since when the anticipated amortization is total, that is to say that all the pending money of the mortgage is returned. We are talking about the cancellation of it. But in addition to the financial loss of the financial institution for the lower interest, also the cancellation fee compensates the administrative work to cancel the mortgage. Cancellation fees are usually 1% on the amount canceled, that is, the money to be repaid on the mortgage, in variable interest mortgages. While they are usually between 1% and 3% for fixed interest mortgages. As in the previous case, it is fundamental to look for a mortgage without a cancellation fee, so that no expenses are generated when paying off a mortgage.
Commissions for mortgage subrogation are usually common in the case of the purchase of a new home. The buyer is usually interested in subrogating the developer’s mortgage, since the latter usually has better mortgage loan conditions than those that can be obtained in a mortgage subrogation in mavas, Bankate, or Apobank. There may also be the case of mortgage subrogation in second-hand housing, although it is less common. In any case, the bank charges a commission, on the capital pending amortization, for the internal administrative expenses involved in the change of the owner of the mortgage. So you have to value very well if you are interested in subrogate mortgage or if it is better to hire a new one. What happens if I want to subrogate my mortgage to another bank ?, You may find yourself with problems and impediments. Keep in mind that it will always be better to negotiate with the bank that already has the mortgage, since being a very profitable product that links the long term to the client, he will always be willing to accept an improvement in the conditions that a loss of customers.
Commissions for novation, very common in situations of mortgage reFinancierLow. For example when expanding mortgage. That is, novation occurs when the initial conditions of the mortgage loan are renegotiated. Normally extend mortgage amount or term, it is possible when the real estate market has grown and the value of the property that serves as mortgage guarantee is higher than when the loan was granted. In any case, it depends on each entity and sometimes it is not easy to extend a mortgage with mavas, Bankeria, Bankate or Apobank. Since they are very large banks. Anyway if you need money it will always be better to extend mortgage for renovations or a second home, than to request a high personal loan. Although as in previous cases the commission is usually calculated on the amount of money pending payment.
What are the requirements to apply for a mortgage?
Undoubtedly one of the most important requirements to get a mortgage is to have savings. Remember that in very few cases you will get the mortgage at 100% of the money you need to buy a home. So under normal conditions you will have to have savings of at least 20% of the value of the home. So the first requirement to apply for a mortgage is to prove that you have enough savings to pay the 20% that the bank will not finance as well as up to 15% more of the value of the property to be able to meet the costs of buying a home and sign a mortgage, especially when it comes to taxes. So to start looking for a mortgage you must have at least 35% of the price of the house in savings.
Having fixed and stable income is another of the great requirements to request a mortgage with all the guarantees. That is why banks love to give mortgages to officials, because they are the ones with the most stable income from the entire labor market. The mortgage is a very long term loan, even over 40 years. So it will be very difficult to get mortgages without having a stable income, although you do not need to be an official, such as an indefinite contract with a fixed enough income to meet the monthly mortgage payments. Normally banks consider sufficient income if 30% – 40% of gross income is greater than the monthly mortgage payments. So to get a mortgage, often the best thing is to have two owners so that the sum of income can be enough to meet the payment of monthly mortgage payments.
Providing a guarantee is usually one of the requirements to apply for a mortgage if your financial solvency is not enough. If the mortgage guarantee is not enough because the owners do not have enough income, the most normal thing is for the bank to request an endorsement to obtain a mortgage. Having a guarantee is another type of guarantee, in this case not real personal as a mortgage. The guarantee implies that another person, in case the holders can not pay the mortgage, will be liable for the debts. In the case of a guarantee, this implies a double guarantee for the bank. To the habitual guarantee of the property, that is to say of the mortgage, the guarantee of a person is added to him, that is to say the guarantee. For this reason, having a guarantee at the time of requesting a mortgage increases the probability of obtaining the mortgage loan.
Have a good financial history, that is, not have previous debts and especially with defaults and debts in files such as Financial Credit Institutions or RAI. These types of listings are reviewed by banks to analyze the solvency of the applicant for a mortgage. For that reason and if you want to request a mortgage, we advise you to check that you do not have debts or defaults on records such as Financial Credit Institutions, other loans or credits such as cards or derivatives of the purchase of consumer products. Because if you appear in a record of defaults that will prevent you from getting a mortgage.
Provide all the necessary documentation in a timely manner, because delays in providing documentation is something very bad seen for a bank that is studying a mortgage application. So try to provide all the documentation and if possible in originals: contracts, payroll, extracts, etc.
What is the Mortgage Interbank and how does it affect my mortgage?
The Interbank is well known to anyone who has a mortgage. Since the rise of this causes monthly fees to rise. The Interbank is the reference index used in Spain since we entered the euro. And it replaced the Mibor. Basically the Interbank and the Mibor are calculated in a similar way, by making an average of the interest rate in which the main European banks lend each other money. In the case of the Interbank today, its definition for fools would be that it is the interest that banks in the euro zone lend on a daily basis. So, each month an average of the daily Interbank is made in order to obtain the value of the Interbank of that month that will be applied to the variable interest rate mortgages that have to revise their loan in that month. Normally the reviews of variable interest mortgages are made every 12 months. That is why many people think that the Interbank is annual. If the Interbank is higher than in the last time the mortgage was revised, then the monthly installments will go up. While if it is less, monthly fees will go down. Remember that, as we have said, the Interbank and the differential are the two components of the interest rate applied to a mortgage. That is why the drop in the Interbank is good news for all those who have mortgages at a variable interest rate. And in Spain more than 80% of mortgages are calculated taking into account the evolution of the Interbank. So when the Interbank reached its historical peak in September 2008 with 5.38%, many saw their monthly mortgage payments become almost unsustainable. However, in recent years all those mortgages at variable interest have seen their shares reduced thanks to the evolution of the Interbank to the minimum reached in December 2014 with 0.329%. And the forecast for the Interbank in 2015 and 2016 is that it continues to remain at historic lows. It is important, in order to take advantage of the decreases in reference interest rates such as the Interbank, that the mortgage deed does not incorporate so-called land clauses. They were set by banks to see that interest rates were going to fall in the coming years due to the market situation. These clauses determined a minimum interest rate, regardless of the value of the Interbank, which ensured minimum interest rates so that the bank obtains an adequate return for the money lent in the mortgages. That is why it is essential to read and review what you sign in the mortgage deed before a notary.
Which is better fixed or variable interest on a mortgage
As we said earlier in the mortgage market, there are fixed or variable interest rates. And as you already know they are a key factor if you ask how much I am going to pay for my mortgage in the future. Keep in mind that with a fixed interest you will always pay the same, while with a variable interest you can raise or lower the monthly payment of your mortgage. Differences between fixed and variable interest:
Fixed interest, as the name suggests, does not vary throughout the life of the mortgage loan. That is, it is agreed at the beginning and once the mortgage is signed, it is maintained during the life of the same.
The variable interest, however, is not fixed, since it is linked to the evolution of a reference indicator. Since the entry of Spain into the euro the most used is the Interbank. Although there are other indexes in the mortgage market such as the IRPH. However the Interbank is the most used and the lowest, but against is the one that oscillates the most. Although from its peak close to 6% in 2008 has not done more than go down to be below 0.50%. Remember that in variable rate mortgages, the differential is added to the reference index. That depends on each bank since it is your profit margin. So the higher the differential, the higher the fee to pay, even if the Interbank or any other index does not rise. Therefore, the monthly payment to pay for our mortgage will depend on whether the interest rates go up or down.
As an intermediate solution of the two previous cases, where variable interest is the most common in the market, we have a mixed mortgage. Which mix fixed and variable interest rate.
What other expenses are there in a mortgage
In a mortgage the most important expense corresponds to the payment of the monthly payment, but nevertheless there are other expenses that can suppose up to 15% more of the price of the house. And that you will also have to pay and therefore you will also have to finance, usually with your own savings because the mortgage does not finance that kind of expenses. To begin with and more important, there are the expenses of taxes for the VAT or the ITP. The VAT (Value Added Tax) is applied when the dwelling is new, while when it is second hand the ITP (Transfer Tax Patrimonial) is applied. And another tax that usually has to sign a mortgage deed, is the IADJ (Tax on Documented Legal Acts) that taxes the total deed and whose tax rate, like the ITP, depends on each autonomous community. Other of the most important expenses, after taxes, and by amount of money. They are notary expenses, property registration, real estate appraisal, agency to process taxes and register deeds, etc.