How to pay less to the bank when buying a home

Interest is one of the three legs on which any mortgage loan is supported. The other two are the deadline and the requested capital. If you do not want to pay more for a house, you have to be very clear what is the interest of a mortgage, how it affects the credit and how much will actually be paid for your home. This article addresses all of these issues.


How is the interest on a mortgage specified in Spain?

First, the type of the mortgage and, secondly, the cost.

On the one hand, there are fixed-rate mortgages or variable mortgages. In the first instance, the monthly instalments will be the same throughout the life of the loan, while in the second type they will vary depending on the reference price of the reference index (such as the Euribor); the manner in which this interest is structured may end up having a direct impact on the cost of the product.

Second, there is the so-called interest rate, which affects the price that will have to be paid when financing housing. Thus, in variable mortgages the interest is expressed indicating the reference index of the loan, to which a differential is added. An example: Euríbor + 1%, where Euríbor is the reference index and 1% is the differential, or the percentage that will be paid on top.

In fixed mortgages, there is no reference index within the interest; it will be possible to know in advance the fee that will have to be met each month. Although the fixed class yields higher interest rates than the variables, but provides a great tranquillity knowing what will be paid accurately over the next few years.


How does the bank indicate the price of the mortgage in Spain?

TIN and TAE are: the nominal interest rate (TIN) and the annual equivalent rate (APR).

The TIN, like other banking products such as fixed-term deposits, savings accounts or other loans, is an agreed percentage that will be delivered to the creditor by the debtor party. In a deposit, the TIN is the gross profit that is obtained from the taxation, whereas in a mortgage will be the profitability that the bank manages to let the money.


On the other hand, in the mortgage loans there are a series of expenses and commissions that can make the product more expensive. The Bank of Spain, with the aim of creating an index that would allow consumers to compare the different alternatives more easily, devised the concept of APR. This percentage not only incorporates the previous nominal interest, but also includes in its calculation all the direct costs of the contracting of the product, such as commissions that may be derived, the operating expenses or the connection, so it is a good indicator to compare different mortgages.


What will a mortgage actually cost me ?

The key to understand how much you will end up paying for a home is to understand all the adjacent costs of the mortgage that can be found along the way. The appeal of knowing this information is to be able to avoid, sometimes, certain payments; although in some there is no choice but to disburse hundreds of euros….if you need the mortgage. In this sense, mortgages are one of the banking products more open to negotiation, so it is very possible that before the signature some charges can avoided, such as early repayment or even the opening commission, so beware!

Next to this there are the initial expenses derived from the process of sale and mortgage deed which, which may represent 15% of the value of the operation, so the increase in total cost is more than significant. This is where you will find the costs of the deeds of the loan, which are currently being the subject of judicial controversy.

Last but not least, you have to be aware of the linkage in mortgages or how the banks will reduce the interest of the loan, provided that the client contracts different extra banking products (insurance, credit cards, pension plans, etc.). Before launching for the least interest, you must know the extra cost that those insurance insurances associates may come to; compared to the actual discount you get from the mortgage.


Here below is a list of points to consider:

• Present yourself as a good client: if you have a solvent profile, with many guarantees, you can convince them of the low risk that it involves investing in you.

• Request the smallest amount as possible.

• Always negotiate with the bank.

• Change bank if they are not willing to negotiate.

• Early repayments should not be penalised. 

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As it is impossible to know in detail every case asked in this blog, all our replies are given in good faith but we strongly suggest that you obtain private advice from a solicitor /and /or  architect who will be able to study in depth your own particular case.

Al ser imposible conocer en profundidad cada caso, todos los consejos y contestaciones a la preguntas realizadas en este blog, los consejos dados son propiciado en términos generales por lo que se deberá contrastar con el asesoramiento privado de un abogado  y/o un arquitecto para estudiar en profundidad su caso.