EDITION: December-March '05


The mortage



What is it?

It is a loan to obtain a dwelling or other building and at the same time, a promise of payment on your part.
Normally a bank grants it, and in case the established payments are not met, it keeps the property or auctions it off.

The information one should be aware of to value and compare different mortgage offers is the following:

1. The amount solicited and the pay back period: The most common instalments of amortization of your loan are 5, 10, 15 and 20 years, although they can run to 30. Even so we recommend that you do not lengthen the amortization period, as the longer it is the more interest you pay.

2. The instalments: You can pay the mortgage every month or according to the periods that you set with the financial institution: monthly, trimesters… The amount can also be the same each month or vary over time. (Variable instalments).

3. Interest types: the most common are three:
- Fixed interest: the instalments are inalterable. The instalments tend to be from 10 to 20 years.
- Variable interest: the interest rate is revised periodically, depending on the international economic situation. The amortization period can be up to 35 years.
- Mixed interest: this is a fixed interest the first years, up to 10 years and the rest of the time it is variable. We recommend that you do not lose sight of the reference index that will be applied on the rest of the loan or the experts forecast on this index.

What can be done if the interest rates go down?
- The mortgage can be re-negotiated with the bank or entity, refinancing. Take advantage of this to agree again on the instalment periods of the loan.
- If you do not come to any agreement you can ask for estimates from other entities and ask for a subrogation or substitution. This process is more complicated and more costly than a re-negotiation and one must weigh if it’s worth it to do it.

4. Annual equivalent tax:
This is calculated considering the annual interest and the mortgage costs, and will help us to compare the interest rates offered by different entities.

Reference indexes

· Euribor: Applied in the Euro zone. It is the daily average of the rates of the principal banks in the European Community (64 banking institutions) over one year.
· MIBOR: This is the average of the interest rates over one year in Spain. This is still in effect for contracts formalized before January first 2000.
· IRPF: This is the average compiled from the interest rates of the mortgage loans contracted in one month by banking institutions.
· CECA: index fixed by the Spanish federation of savings banks.
· National debt: Return rate average from the national debt over 6 months.

Steps to apply for a mortgage

1. The application: It should provide fiscal documentation, and of the house or building to be mortgaged.
2. Assessment: The value of the assessment will determine the maximum limit of the loan.
3. The binding offer: The financial entity will study all of the documentation and give a Binding Offer, a document valid for 10 days in which the clauses and conditions of the agreement are set out.
4. The formalization: The mortgage agreement is signed in the presence of a notary public, the buyer, and the financial entity, later to be entered in the property register.

Mortgage costs

· The mortgage opening commission, which can oscillate between 0.5% and 2% of the amount applied for. Remember, mortgages, once paid off, must be cancelled to avoid surprises.
· The registration costs of the mortgage in the register and the notary.
· The tax of juridical documents, varies according to the autonomous community.
· Fire insurance, which is obligatory according to the mortgage law, and is beneficial to the financial entity.

The Interban team works hard to get the mortgage that most suits your needs and advises you throughout the process, helping with all the paperwork that the process requires and getting results in record time.