For the majority of home purchasers, we have to investigate on various mortgages to buy a property and choose one. For the purchase process of a home you are required to have saved 20% of the value of the home and another 10% to meet the expenses. Also, it is advisable that the monthly payment does not exceed 35% of the income of those who request it.
Searching for the adequate mortgage can be a real conundrum, especially when you buy your first home. Experts like us ChicRoom Properties have the task to facilitate every step of the purchase process of a property. This is why we are providing with this guide of the various examples of mortgages to buy a property in Spain.
Fixed-rate VS variable-rate mortgages
These are the two most common types of mortgages. You might be wondering which one is more convenient or how to decide which one to choose. Here are some explanations.
Fixed-rate mortgages
You agree a fixed interest rate with the banking entity of your choice during the entire loan, from the first to the last instalment. According to Laura Martínez, mortgage expert at iAhorro, in an interview for Habitaclia, some banks offer a fixed rate of around 2.25% to 3%. You can negotiate the rate if you decide to hire some of the entity’s services such as a home insurance or a direct debit.
Variable-rate mortgages
The interest rate is based on the Euribor (or Euro Interbank Offered Rate), to which a differential is added. With variable-rate mortgages, the first year is usually a fixed rate. It is currently between 1.20% and 2%, and from then on it will be the Euribor plus 0.99%. However, some banks propose a lower percentage up to 0.89% and even 0.85%.
For the last two years, the Euribor has been in a negative rate, which in the end counts with an interest payment of zero. In this case, only the corresponding to the differential is paid, so these first instalments have a very low interest. However, take into account that the rate may rise in the future.
Pros and cons
The variable-rate mortgages are uncertain, which could become a problem in some cases. According to Martínez the Euribor is quite likely to rise in the near future. Even if it goes up to 1%, for instance, the variable rate mortgages would still be below the fixed rates with 1.99%. But the future economy is unpredictable and the rate could continue to rise to a much higher one. This means that if the Euribor rises again like during the 2008 economic crisis, the monthly amount to pay can be much more important than expected. Therefore, you must be prepared to face the tricky situation to reimburse a mortgage way above your affordability.
If you want to feel more secure, it is probably better to opt for a fixed-rate mortgage. With this option, you will know what to do every month during the whole loan period, making sure that there will not be any increase later.
Reverse mortgage
For many people, especially after a certain age, their home is more than a mere dwelling but the savings of a lifetime. But this a fixed asset and money they cannot spend. Reverse mortgage is an option to get momentary or life-long income while still disposing of your home. Although still uncommon in Spain as banks used not to offer it, the service is now available and is forecast to be more popular.
The definition
It is exclusively designed for people over 65 years-old, owners of a property with a value of minimum 150,000 euros. This loan with mortgage guarantee is the only loan that does not return to the signatory, but their heirs. In this way, whoever owns the home receives money for the it. After the owner’s death the heirs can give the money back to the bank if they want to keep the property.
To calculate, it all depends on the value of the home evaluated by an independent appraisal and the age of the owners. To obtain an approximate figure, use this free tool (only in Spanish).
How does it work?
Here is an example. For a house worth 300,000 euros, the owner will get an average of 30% of the value of the home (100,000 euros). It could be charged at once or with monthly payments of about 600 euros as life annuity.
When the loan holder passes away, those who inherit the house can sell it for the price at that time. They could also return the reverse mortgage to the bank and dispose of the rest of the money that derived from the sale. In this way, both parties benefit from it. Elderly people can use their own savings to live comfortably in that last stage of their life. And the heirs still receive a good part of the value of that house.
What are the advantages?
The only expense is the appraisal of the house of about 300 euros on average. Reverse mortgages are exempt from any documented legal acts tax.
The owners still can decide what they want to do with their home. They can live in it or even rent it. Unlike when a property is sold, there is no transfer of the property the mortgaged person is still alive. In addition, the reverse mortgage can be cancelled at any time in exchange for a small penalty.
Elderly people are legally protected against bank entities. Indeed, reverse mortgages are regulated in Spain by Law 41/2007. As well as determining the exemption of certain taxes, the law establishes the obligation that an independent advisory service always intervenes in the contracting of a reverse mortgage to ensure that it is done correctly.
Green mortgage
Awareness of climate changes has not only reached people but also bank entities. For the latter it concerns their corporate social responsibility obligations. Therefore, it seemed obvious that mortgages also became “greener”.
More and more Spanish banks are proposing green mortgages. Although this service is not very wide spread compared to the rest of Europe, it is now offered to private clients willing. The new Mortgage Law in June 2019 is the only legislative text mentioning green mortgages.
Having a more eco-friendly home could actually be beneficial when you come to ask for a mortgage to your bank. You could get a reduction of between 10 and 20 points for buying a dwelling with an energy rating of B to A+ or reforming it with eco-technologies to save resources.
Buildings currently generate 36% of CO2 emissions and 40% of energy consumption in the European Union. The improvement of the energy efficiency of housing contributes not only to the lower the impact of climate change, but also in avoiding tenants and owners to face higher energy bills and obtain a cheaper loan. On the other hand, according to Lucía Veiga, Communication Director of the mortgage office at iAhorro in an interview with El País, banks are also benefiting from it. Indeed, this energy efficiency reduces the risk of non-payment by the owners and increases the value of the property.
Once you get your mortgage
Now you have chosen one of the various mortgages to buy a property come back to us and we will help find your new home. Buying a property in Barcelona requires the assistance of professionals like ChicRoom Properties. In addition, we propose an extensive catalogue of magnificent luxury properties for sale in Barcelona that you could discover in our website.
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