Who can you contact to acquire your future house with?

Previous checking before the purchase:

What tax must be paid when buying a house?

Photocopy of the applicant’s N.I.F.-C.I.F.

Copy of contract of the house to mortgage.

Verification or Register Certification: document expedited by the Register of the Real Estate in which the house is cleared of charges.

If you work, you will also be asked for the following:

Last payslip.

Last income returns.

Any other income justifiers.

Last income returns.

Last annual declaration of I.V.A.

Once you have all the preliminaries requirement, you will have a problem when choosing what type of mortgage is better for your necessities. For this, you will have to keep in mind the following factors:

A – Amount of the mortgage: it is the amount of money that the Financial Entity gives the client when the loan is accepted. In the case of the mortgage, there are two types of limits to determine this total amount:

1. - The value of the house: the maximum amount to finance, this means, the total amount that the mortgage will get, it is usually between 70% and 80% of the house or immovable.

2. - The applicant’s own incomes: the amount is limited so the quotas to pay do not exceed 35 or 40% of the applicant’s justifiable net profit, in that way he will be able to face the payments without problems.

B – The interest: it is "the price" the client is compromised to pay the Financial Entity as the result of having received a determined sum of money as a mortgage.

The Equivalent Annual Rate (T.A.E.) is to compare the interest rates that the different Financial Entities offer.

To calculate you have to keep in mind the periodicity of the payment, the nominal interest rate and the initial commissions. We have mentioned early on that, in keeping with the interest rate, the mortgages can be classified in:

1. - Fixed Interest Mortgages: the interest rate established on the contract stays inalterable during the life of the mortgage.

With this type of mortgage, the Financial Entity that lent the money as well as the client are exposed to a risk of interest, this means if the interest rates drop, the clients cannot benefit of such fall and he may be paying a higher price than if he did the contract on this moment.

If the interest rates rise, the situation is the opposite, and the affected party will be the Financial Entity, because this rise will not be able to reverberate on the client. For all of this, the operation is usually fixed with shorter terms than the ones established when the interest is variable, this is to avoid the risk of the interest rate variations for both parties.

What advantage has the fixed rate mortgage?

The main advantage is to determine, from the beginning of the operation, the exact amount of the quotas to pay during the life of the mortgage.

2. - Variable Interest Mortgages: they are operations in which the interest rate changes every such a time, in keeping with the previously established rules. The way to determine the interest is as follow:

An initial interest rate is agreed and stays fixed during a pre-established period and for the most Financial Entities oscillate between 12 and 18 months.

Once this period is over, the interest rate changes in keeping with the evolution of the reference index agreed on the contract, and a different value is also added, if this has been compacted.

The risk that the Financial Entity as well as the client take is the changes of the market:

During the period of low interest rate, the client will pay less interest, so he will get benefited.

During the period of high interest rate, the client will have to make a higher interest payment.

For this, and the interest rate adjusting to the market, the Financial Entities usually offer longer amortisation instalments (normally between 20 and 25 years) than the used on the fixed rate mortgage (normally between 10 and 15 years).

What advantage has the Variable Interest Mortgage?

The main ones are the following:

Obtain a financing that is usually in a long term, with the reduction of the amount to pay.

If there is a situation of interest rate fall, reduce the quota to pay.

Reference Index: it is the variable in operation of which the mortgage interests rate changes.

There are different types of Reference Index, the most common are:

Mibor: it is the price of the money, this means, it is the price that the banks and savings banks lend money to each other. This interest rate is communicated by the Bank of Spain, in its daily informative notes, as well as in other communication resources.

Private Banking: depending on the information that the banks must send to the Bank of Spain is the medium rate of the credit operations. There are different types, the most eminent are:

Credit account of one year to, at least, 3 years.

Loans of 3 or more years.

Spanish Mortgage Association: it is a reference index of the trimestral periodicity mortgage market. It is calculated reducing in a percentage point the average of the most used interest rate on the mortgages allowed by the branches of the Spanish Mortgage Association for the financing of the free housing, considering the last month of each trimester.

Active Index of Reference CECA (Spanish Union of Saving Banks): depending of the information sent by the savings banks to the Bank of Spain, it is the average type of the operations of the personals loans from 1 year to, at least, 3 years and the loans with hipothecary guarantee for the acquisition of free housing in a term of 3 or more years. Any of the reference indexes described that can be applied to a mortgage of variable interest has to be really determined at the sign of the contract, as well as its way of application.

For an interest rate to serve of reference is the follow one:

It must be public and verified easily by the client, so the Financial Entity must say where it is published.

It has to be objective, this means, without giving doubts with regard to its calculation.

It must be neutral, this means, the Financial Entity cannot influence in its determination.

The Differential: it is about the added amount to the interest rate of reference by the Financial Entities.

How is the differential value specified?

A fixed amount can be established during the life of the mortgage.

It can be fixed as a percentage over the reference index that has been used.

C – The interest period: it is the period of time when the interest rate of a mortgage, at variable interest rate, stays unchanged.

On the variable interest rate mortgages we have to differentiate between:

Period of interest at fixed rate: it is the term when the initial interest rate compacted on the mortgage contract stays in force.

Period of interest at variable rate: once the interest period at fixed rate finishes, the interest period at variable rate starts and last until the mortgage instalments finish during this period, the interest changes every such a time (usually every year) depending of the reference index.

D – Quota to pay: it is the amount that the client is compromised to pay periodically (monthly, quarterly or annually) to the Financial Entity that lent the mortgage as interest and repayment of the lent capital.

E – Amortizement term: it is the time agreed on the mortgage contract for the client to give back the total lent money to the Financial Entity. It is usually between 10 and 25 years and will depend on:

Commercial policy type of the Financial Entity.

If it is a mortgage at fixed or variable interest rate.

The age of the applicant.

There are mortgages on which a privation period is established. The privation can be defined as the initial period of a mortgage where the client only pays the interest, without amortizeing the capital.

F – Amortizement Systems: there are different amortizement systems, the ones with constant quota to pay, quotas of constant capital, quotas of increased capital, etc. The most used by the Financial Entities is the constant quota to pay, where the amortized capital goes increasing during the life of the mortgage, reducing, therefore, the interest to pay.

A - Previous expenses to the formalisation:

Once all the necessary requirements are completed for the concession of a mortgage that have been specified early on, the Financial Entities, before it is formalised, do the following proceedings:

The Valuation: the house has to be valued, this means, valued by an expert independent from the Financial Entity. This valuation is needed and the expert who does it has to belong to an official enterprise inscribed in the Register Office of Economy and Finance.

Verification register: it consist of checking the existence or not of charges over the house that it is going to be mortgaged. Both proceedings originate a few expenses that are for the applicant, without depending of the approbation or negation of the mortgage. Once the details are approved, the formalisation of the mortgage will be accomplished in term between 15 days and one month.

B – Formalisation Expenses:

Opening commission: it is about a commission that the Financial Entity receives only once, at the beginning of the mortgage. It is usually established as a percentage over the mortgage value.

Study commission: it is also an initial commission that it is usually established as a percentage over the mortgage value, it is received only once at the beginning of the operation.

Subrogation commission: the subrogation is the act for which a person, assuming the debt, accepts legally all the rights and obligations proceeding from the allowed mortgage, this means, he becomes the mortgage titular. Usually, this is done when a person acquires a house directly from a promoter-builder.

The Financial Entity has to agree for the subrogation to be done, proceeding the payment of the correspondent commission on the subrogation hand, although in this case the opening or study commission will not be recovered.

Notary Expenses: it corresponds to the realisation expense of the public contract given by the Notary. The amount to pay depends on the established fees, they may vary depending on the number of folios that the contract has.

Official Tax: the constitution of Mortgage is subjected to the Documented Legal Acts Tax. The amount to pay for such tax is calculated applying a percentage. At the moment is 0.50% over the total value guaranteed (Principal, Interest, Expenses).

Expenses of inscription in the Register of the Property: once the mortgage contract has been formalised, it must be inscribed in the correspondent Register of the Property.

The act of inscription in the Register is made by the Financial Entity that allowed the mortgage.

 

C – Other possible expenses:

Delay Interest: it is the interest rate to apply to those amounts that, coming their expiration, this means, its payment date, have not been paid. In conclusion, it is a fine to the mortgage’s titular if he does not effect his payment obligations.

Commission of advanced cancellation and commission of instalments to account: usually, the Financial Entities recognise their clients the right of the total or partially mortgage cancellation before the agreed term finishes. As the mortgage interest are estimated for the total life of it, if this is get shorter, the benefit of the Bank or Saving bank is lower. For this, when the total or partially mortgage is cancelled (with instalments to account) the Financial Entities receive a commission that is a percentage over the cancelled amount or giving to account.

Commission for modification of contracts: this commission is applied in case that, by request of the client and approved by the Financial Entity, some of the established conditions at the beginning of the contract are modified during the life of the mortgage. The amount of it is calculated applying a percentage over the unpaid capital in act to the modification. The purpose of this modification is to compensate the Financial Entity for the needed administrative transactions to proceed to the modification of the original contract.

Commission for reclamation of unpaid quotas: in the case of existing unpaid quotas, the Financial Entities usually collect from the client, when the debt is regulated, a fixed amount that is pre-established on the contract.

Commission for emission and transmittance expenses of the bills: the commission for emission is not very usual, it is a fixed amount that a Financial Entity reflects in all the mortgage bills. The transmittance expenses originated to the Financial Entity for the transmittance of the mortgage bills to the domicile indicated by the client. The scale of commissions to reflect to the client must be communicated previously to the Bank of Spain and it is at disposition of any person who wants to consult it.

Deductions of the taxable basis: the satisfied interests of the mortgages destined to finance will be able to get deduced from the taxable basis:

The acquisition or improvement of the house.

Any investment or expense inherent to the immovable designated to professional or enterprise uses in function of legal regulations on which the titular of the mortgage is found.

Deductions on the tributary quota: it will be deduced up to 15% of the amortized capital during the life of the mortgage destined to the acquisition or rehabilitation of the house that constitute or is going to constitute the usual residence of the mortgage titular.

Choose the offer that more attract you.

In the new entity, apply for information about the expenses for changing of mortgage, they are:

Commission for advanced cancellation of the ruling mortgage.

Notarial honorary.

Register rate.

Commission of opening of the new mortgage.

Valuation expenses.

Agency honorary.

Compare if the savings interests to pay are compensated with the expenses for changing of mortgage.