If you want to buy a house and you are thinking about hiring a mortgage, it is important that you know that the market offers a wide range of products. To choose the mortgage loan that best suits your needs, follow this comprehensive guide prepared by BillCare.
Asking a mortgage to a bank is not a simple procedure because, although housing will act as a guarantee, you must prove that you are not a risky customer.
However, although you may be tempted to accept the offer of the first bank that proposes to finance your project, you must not forget that a mortgage is a commitment that will tie you for several years and that you must be sure of your decision.
In this sense, and before deciding on a product or another, it is necessary that you compare the wide range of mortgages existing in the market. For that, before accessing our comparison of mortgage loans, it will be necessary for you to find out about the ten elements that you must take into account when starting your search.
1. Monthly payments
Although the vast majority of those interested in hiring a mortgage seek an offer with a low monthly fee, it is known that the cheaper the monthly payment, the higher the interest. Therefore, before deciding on a tempting offer, we advise you to review the points related to the monthly fee and analyze how the payment will evolve.
Remember that some types of mortgages have very low monthly payments in their first years of amortization but then increase by up to 60%. Actually the monthly payment is the most variable part of a mortgage because it can change by an infinity of factors.
2. Interest rate
Undoubtedly, the interest rate of a mortgage is the most important element when determining the final price you will pay for your loan.Do not forget that the fixed rate mortgage with the lowest rate may be the most attractive offer.
However, in a variable interest mortgage, the total cost of the loan will be defined by the price of the Euribor one year plus the differential that you have agreed with your bank. It is quite difficult to compare the variable interest mortgages because they lack an initial fixed rate.
For this reason, we recommend that when making your comparison, group the offers according to the reference type: Euribor, IRS or IRPH. The simplest thing is that you compare the different mortgages according to the differential they propose and then choose the reference that best suits your needs.
For that, you can only look at the historical evolution of the referential and not in its future estimate. Regarding the interest rate, do not forget to look at the so-called floor clauses, because if you exceed an interest of 2.50% you will not be able to enjoy the decreases of the Euribor
3. Initial contribution
The initial contribution is a very important aspect when comparing mortgages, because the higher it is, the better the conditions that you can obtain from the part of a bank. In effect, a high initial contribution means that the amount to be financed by the bank is lower, which decreases the risk factor that you represent for the institution.
4. Purchase amount or financing percentage
Another point to take into account when comparing mortgages is to know what is the percentage of financing of a particular bank, that is, how much the bank will lend you to buy your home.
There are mortgages within the financial market that set both minimum and maximum limits of the amount to be granted, so the situation may arise that the house you want to buy is too expensive or too cheap for a particular bank. It is important to know that, currently, most mortgages offer 80% financing. However, there are banks that offer 100% mortgages.
Although it is not impossible, finding a mortgage without commissions is quite difficult. The most usual thing is for the client to negotiate this point and reach a favorable agreement for both parties with the bank. And, because the commissions can make your loan more expensive, it is important that you know which are the most common.
- Opening fees: between 0.5 and 1% of the amount financed.
- Commission with early cancellation: 0.5% for the first four years and 0.25% onwards.
- Commission for subrogatory cancellation of the bank.
- Compensation for interest rate risk.
6. Linked products
Financial institutions often propose mortgage loans to their future clients that include attractive benefits in exchange for contracting a certain number of linked products. However, enjoying a lower differential is not always cheaper. Some banks require the hiring of at least six links to make the offer effective, however, each of these products may incur additional costs. Among the most commonly used links are: direct debit of payroll, home insurance, life insurance and payment protection, cards, payroll accounts and pension plans.
7. Early cancellation
Another point to take into account when comparing mortgages are the conditions set by the bank by way of early cancellation. And, although the commissions for this purpose are set by law, some banking entities do not charge any type of charge. Maybe you’re interested: How to make a dation in payment to settle your mortgage?
8. Amortization terms
It is important that you also look at the minimum and maximum terms that the bank gives you to return the mortgage. Do not forget that the shorter this period is, the smaller the interests will be. Most mortgage loans offer maximum repayment terms of 30 years, although some may reach 40.
If you have a low personal contribution, if you do not have a good financial stability or if you do not meet all the requirements that your bank requests, it is very likely that you must have a guarantee to apply for your mortgage.
This means that another person who presents excellent financial conditions will support the repayment of the loan in case you can not pay.
10. Personal requirements and documentation
It is also important that you notice the amount of requirements when hiring a mortgage. While most banks require the same list of documents, they may vary from one entity to another.