The Bank of Spain defines it as follows in the mortgage loan access guide: A mortgage is a loan whose payment is guaranteed by the value of a property.
It is a banking product that allows the client to receive a certain amount of money (loan capital) from a credit institution (lender), in exchange for the commitment to repay said amount, together with the corresponding interest, through periodic payments (quotas). ). The difference with other types of loans is that it has an additional guarantee: the acquired property.
In any mortgage loan there are two fundamental elements. The first is the loan contract, in which the obligations of the debtor and the conditions of the loan are detailed, as well as the repayment term, the installments and the amortization system. The second element is the mortgage guarantee, which means that in the event of non-payment, the lender can take ownership of the mortgaged asset.
Characteristics of the mortgage loan
- It will represent a significant financial commitment in the future.
- They are usually of high amount and have a long duration.
To take out a mortgage, you have to make sure that the income is recurring and adequate for the debt that is going to be assumed, and take into account the initial savings and net income before borrowing.
There are two factors that will determine the limits of the amount of the loan, but also the repayment term and the resulting installment:
- The appraised value of the home, which should not be confused with the purchase price of the property. The Authorized Appraisal Companies are the companies that value the appraisal and are accredited and registered in a register of the Bank of Spain. The maximum of the mortgage loan will not exceed 100% of the appraised value, although some entities can lower this amount to 80% or even 60%.
- The borrowing capacity of the applicant. Financial institutions carry out a study of the applicant’s income and expenses to assess how much money they have monthly to make mortgage payments. Ideally, the monthly fee should not be more than 30-35% of monthly income after expenses. In addition, it is recommended to have saved at least 20-25% of the total value of the home and 10% for associated expenses.
So what costs does a person face when taking out a mortgage? First the interests, then the associated expenses and finally the commissions.
Type of interest
It is important to know the modalities that exist. They are three:
- Fixed interest mortgage loans in which the monthly installment and the interest rate applied do not vary during the term of the loan. The advantage is that the same installment will be paid each month, even if market interest rates rise or fall. But initially it is usually a higher rate and a shorter repayment term than the variable rate.
- At variable interest, made up of the value of the reference index (euribor for example) plus a fixed spread. The amount of the fee is updated at each revision to the value of the reference index. The most common reviews are annual or semi-annual. For example, if the Euribor referenced to 1 year is at 0.60% and the spread is 2%, the annual interest rate of 2.60% would be paid until the next revision. With this modality, the fee will be higher when rates rise and lower when they fall.
- And the most common, which are mixed mortgage loans, apply a fixed rate for part of the term and a variable interest rate for the rest.
In addition, mortgage loans carry a series of associated expenses. These expenses are:
- Notary fees and Property Registry
- Tax derived from the formalization of the loan with mortgage guarantee
- Costs of appraisal or valuation of the property
- Fees for processing the agency
Currently, these expenses usually account for approximately 3% of the amount financed. In other words, for a mortgage of €150,000, some €4,500 will have to be added in non-recoverable expenses.