As a general rule, applying for a bank loan to be able to carry out such an operation is essential, but choosing a mortgage can be very complex and can be a headache.
Firstly, because of the wide range of banking institutions available; secondly, because of the different macroeconomic concepts involved; and finally, because of the many types of product available and their respective clauses and conditions.
All this implies the need to have knowledge prior to the signing of the contract which, in most cases, goes beyond our information on the sector.
This can lead to unpleasant situations in which financial entities take advantage of the lack of knowledge of the loan applicant to include abusive clauses that considerably increase the price of the product.
To avoid precisely this type of practice, we will explain everything you need to know about mortgage loans, so that you can identify which mortgage is best for you in your particular case.
Mortgage loan: find the perfect balance
Firstly, the two fundamental elements in any mortgage loan should be explained. The first is the loan contract, which details the debtor’s obligations and the conditions and characteristics of the loan. The second is the mortgage guarantee, which means that the bank can take ownership of the mortgaged property in the event of default.
With respect to the total amount, this will be determined mainly by two factors: the appraisal value of the property and the debt capacity of the applicant.
The usual is that the mortgage loan ranges between 60% and 80%, depending on the study that the financial institution performs on the applicant to know their income and expenses, and thus determine the risks of the operation and its viability.
As a piece of advice, the best thing to do is to reduce the amount of the loan as much as possible, since the higher the capital requested, the higher the amount of interest to be paid to the financial entity.
The key to signing a mortgage contract is to find the perfect balance between an affordable monthly payment and a term that is not too long. Experts agree that the maximum monthly payment should never exceed 30% or 35% of the net monthly income.
Analyze the different types of mortgages
The banking sector offers a wide range of products depending on the type of client and the state of the economy and the real estate market.
Thus, it is the duty of the interested party in signing a loan to know which type of mortgage best suits their needs. Don’t you know the difference between fixed mortgage, variable mortgage and mixed mortgage? We explain them:
It is one in which the same interest rate is applied throughout the life of the loan, which is the one we will agree with the bank at the time of signing.
This means that the monthly payment will always be the same and that the mortgage will not depend on any reference index, so the monthly payments will not be affected by the fluctuations of the financial markets. This interest will only be modified if the conditions of the bond are not fulfilled.
In this type of product, interest has a fixed part that is agreed with the bank, and a variable part, known as the reference index. Normally it is the Euribor, although there are others like the IRPH, although it is preferable to avoid it because it is higher.
It is a mixture of the two previous types. They usually have a fixed first tranche of between 3 and 10 years generally, and then they become variable rates.
Fixed-rate mortgages are not affected by clauses and in the long term they cost less, although the interest will always be higher than in a variable or mixed mortgage and the bank will make us contract more linked products if we wish to reduce the interest.
Variable interest mortgages are subject to the evolution of the Euribor and the interest is lower, so they will be advantageous as long as this index is maintained in reduced numbers. Even so, it involves unstable instalments and is more difficult to negotiate.
In a mixed mortgage, the interests during its fixed phase are lower than the average of the fixed rate mortgages. The differentials during the variable period are also better than the current ones of the variable rate mortgages, but this type of loan is only favourable in a very concrete scenario of early rise of the Euribor.
Negotiate the commissions as much as you can
When signing a mortgage loan it is essential to pay attention to the fees included, since they can considerably increase the cost of the final product.
The most common are the opening, subrogation, novation, early redemption or withdrawal fees and the interest risk fee. We tell you what each one consists of:
Mortgage opening fee
This commission is due to the payment of previous services that the bank has to carry out before the signature of the mortgage, such as a risk study of the client or the financial operation itself.
However, this issue is extremely topical, both because some entities have stopped charging, and because of those who have got used to including this commission without carrying out the mentioned services.
This is the amount of money that the bank charges when changing the debtor of the mortgage loan, and based on covering the administrative and management costs of the loan.
This is a clause that can be negotiated, which should be 0 euros, since the bank will rarely risk losing a client for the payment of such a small amount.
Commission for novation
It basically consists of an amount of money charged by the financial entity to modify the conditions of the mortgage and thus cover the administrative and management costs of the loan.
The reality is that it is more a tax than a service, since it is a variable percentage not only between different banks, but also between clients of the same entity.
Early redemption or withdrawal fee
This is a fee that banks can charge when a loan is partially or fully repaid, or if it is cancelled.
It is a compensation for the money the bank would stop earning through the interest on the amortized capital, and can be negotiated to be removed from the contract.
Interest risk commission
It is established by the bank on fixed-rate or mixed-rate mortgages in their fixed interest period and is applied when a loan is totally or partially amortized and such cancellation entails a loss for the financial entity.
It is a commission that can only be applied in cases where the market rates are lower than those of the mortgage loan, at the time of cancellation or subrogation of the same and its amount usually varies between 0.75% and 5%, but can be negotiated with each entity because it is not regulated.