Considered one of the first types of guarantee within the financial world, the mortgage represents one of the most used resources when buying a house through a bank loan. Follow this guide prepared by Bill Care where we tell you everything. If you are thinking about becoming an owner but do not have enough money to acquire the property, you will most likely have to resort to a bank loan.
However, the task of obtaining financing for the purchase of a property is not always easy. In effect, whatever the bank, it will only accept your claim if it is guaranteed to recover the capital invested in case of problems.
The mortgage or mortgage loan is one of the oldest and most used solutions when applying for a real estate loan. That’s right, because if you can not pay the loan installments due to financial difficulties, the bank will take your own home as collateral and will repay the amount owed. There are several things you should keep in mind when comparing mortgages. Do you want to know exactly how they work? Take a look at this complete guide.
The mortgage is a banking product that is materialized through an agreement between a bank and the loan applicant that agrees to return the property to the financial institution in case of non-payment.
In simple words, the mortgage is the guarantee offered by the buyer of the home to the bank that will grant the loan for the acquisition of the property. In this sense, in case you do not pay the installments of the loan, the bank is authorized to sell the property and keep the funds collected in the limit that sets the debt.
The mortgage is an unmistakable banking product
Although all banking products are different among them, the mortgage or mortgage loan differs from the rest due to its main characteristic: the real placement in guarantee of the mortgaged property.
However, from this great difference arise other characteristics of mortgages:
- The terms for the return of the loan are longer.
- The interests are usually relatively low.
- Normally it requires the direct debit of the payroll.
Different types of mortgages according to their interest rate
When hiring a mortgage for the purchase of your new home, you must choose between the different types of interest existing for this banking product.
Currently, banks propose the following modalities:
Fixed interest mortgage
As the name implies, this modality consists in that both the interest and the monthly payment are fixed at the beginning of the contract and will remain fixed throughout their duration. In this sense, and regardless of whether market interest rates go up or down, you will always pay the same and you will not have any surprises with the value of your monthly payments.
The great disadvantage of this method is that the interest rate is higher and that the amortization periods allowed are shorter, normally reaching a maximum of 20 years.
Variable interest mortgage
When opting for this modality, each quota will consist of the value of the reference index plus a fixed differential. This means that this interest rate is reviewed annually or semiannually, adjusting it to the values of one of the reference indices.
The advantage of this method is that at the time of signing the contract, the initial interest rate is usually lower than that of fixed-term mortgages. In turn, repayment terms are usually extended up to 30 years and even more in some cases. Do not forget that with a variable interest rate you run the risk of paying a much higher monthly payment if the interests in the market rise.
Mortgage at mixed interest
The mixed interest mortgage offers monthly installments with a fixed interest rate during a certain period of time. After the initial term, which lasts between three and five years, the interest rate becomes variable for the rest of the time fixed by the contract.
Mortgage legislation in Spain
Currently, mortgage loans have a specific legislation in Spain quite rigorous.
Among the important points of this legislation are that the bank is obliged to deliver a binding offer ten days in advance in which all the background and financial conditions of the eventual contract are collected.
In turn, it stipulates that the participation of a notary to obtain a public deed is indispensable. In turn, it has the power to report any anomaly presented by the contract between the bank and the client.
Finally, it is important that you know that the responsibility for calculating and publishing the reference indices that regulate the indexation of the interest rate on variable loans rests with the Bank of Spain.
The documents that the bank will request
The bank requires a lot of requirements when hiring a mortgage. Before obtaining a mortgage loan, and even though your home will act as collateral, the entity must ensure that your ability to pay is compatible with the amount you are requesting.
For this, you must present a series of documents that the bank will analyze in detail. They are:
- DNI / Passport / Residence card
- Statement of income
- Last two payrolls
- Copy of the work contract
- VAT return (if you are independent)
- Housing appraisal report
- Registration check
- Report on the heritage