Types of mortgages: the current mortgage offer
Choosing among various mortgage offers is a complex process. If we are going to acquire a home and, in addition, we need to contract a mortgage to obtain financing, it is necessary to know all the information that involves a mortgage loan before signing the contract. Next, we show a table with the best mortgage offers that the current market offers:
In this mortgage the interest rate that is applied varies depending on the fluctuations of the Euribor, with which the quota to pay will rise or fall as the Euribor does. The nominal interest rate (TIN) is calculated by adding the differential applied by the bank plus the Euribor value of that month, that is, TIN = differential + euribor.
The usual thing is that the Euribor data of the month in which the mortgage is signed is applied, and that every six months the interest rate is updated according to the Euribor. In this way the same fee is paid for six months, and after that time the quota is recalculated, being able to go up or down.
The mixed mortgage combines the operation of the fixed and variable mortgage, although in practice it behaves like a variable mortgage. The bank offers a mortgage that for a few years operates at a fixed interest rate and during the rest of the years an interest rate is applied based on the Euribor. For example, a mixed mortgage could have a fixed interest rate during the first 10 years, and the rest of the loan would have a variable interest applied to the Euribor. This mortgage allows you to benefit from not having rises in monthly payments during the first years, and in the future to adapt to the Euribor situation.
What conditions determine if one type of mortgage is better than another?
The mortgage market offers a wide range of mortgages and the banking entities do not apply the same conditions to each one. An offer is considered more attractive than another based on its characteristics and the conditions of the buyer. Interest would not be the only determining factor, there are many other variables that influence the total cost of a mortgage:
Interest rate: interest is one of the most influential factors when calculating the total cost of the mortgage loan, since it affects our monthly installments. Currently, we find mortgages with a fixed, mixed or variable rate interest.
Term: the term of the mortgage directly impacts the total amount of the loan and the fee. The shorter the term, we will have higher quotas; if on the contrary. we have a longer term, the quota will be lower, although we will pay interest for a longer time and the total cost will increase.
Commissions: another factor to take into account are the commissions. It is very common for banks to include commissions that may involve an additional cost in the price of the mortgage. The most common commissions are opening, early amortization, novation, subrogation and interest rate risk commission.
Bonding: Banks often offer a series of linked products in exchange for lowering the interest rate. Linkage can mark if the mortgage is good or bad, since sometimes we have a very low interest, but with a number of linked products that will increase the total price of our mortgage. That is, if we include home insurance (which is mandatory), life insurance and a pension plan, the price of our mortgage will increase considerably.
If we want to expand information on the conditions that we must take into account when applying for a mortgage, the free guide How to ask for a mortgage to the bank, prepared by the experts of HelpMyCash.com, will help us to know the 25 essential questions to ask the bank before to sign the mortgage, in this way we will make sure that we know all the important information before making a decision and decide for a type of mortgage.
What types of mortgages do we find based on interest?
Interest is one of the factors that impacts the total amount of the mortgage loan. It is necessary to know what kind of mortgage interest the bank will offer us in order to get an offer:
Variable mortgage: in variable rate mortgages the interest varies throughout the life of the loan. The majority of mortgages in Spain are referenced to Euribor plus a spread. Therefore, as the current Euribor rate varies, the mortgage fee will also change with each revision.
Fixed mortgage: in this type of mortgage the interest remains unchanged throughout the entire amortization period of the debt. Therefore, these mortgage loans stand out for offering the consumer a security, since he knows from the beginning the total price of the mortgage to be paid. In 2018 the demand for fixed mortgages has increased and we can sign mortgages below 2% for short terms.
Mixed mortgage: these mortgages combine the two types of interest, fixed and variable. Nowadays, with the values of the Euribor in negative, the banking entities apply a fixed interest in the first years of the mortgage and the rest variable. Therefore, they are not considered as a good offer at present, although it may be an option for those clients who want to contract a fixed mortgage and can not afford it because their fees are higher.
What mortgage is best for us according to the purpose of the house we are going to buy?
According to the characteristics of the property that we choose when buying a house, we will find two types of mortgages to finance housing:
Mortgages for first homes: when we want to buy a house and allocate it to be our habitual residence, banks usually offer more affordable conditions, because, due to the characteristics they offer, customers can more easily afford the debt and the entities assume less risks Normally, for this type of housing banks grant 80% of financing, a term greater than that of second residence.
Mortgages for second homes: in many cases, the client already has a habitual residence and what he wants to buy is a holiday home. The loans to acquire these properties differ from the others for their financing and their term. In general, your maximum LTV is 60%, while the repayment period reaches up to 25 years. In addition, banks require a more solvent profile to qualify for these types of mortgage, since there is a greater risk that customers stop paying their second home.
These are the two main purposes for which mortgage loans are used, but these products can also be contracted for other purposes. For example, there are self-powered mortgages to finance the construction of a property or the mortgages for investment that some banks will grant us if we want to acquire a house to get a return (renting it to third parties, selling it in the future, etc.).
Types of mortgages for special cases
Sometimes banks have a series of mortgage offers with special conditions for specific profiles, such as employees or freelancers. The characteristics and requirements of mortgages usually vary depending on the type of client:
Young mortgage: also having little age can be an inconvenience, since the entities understand that we have less savings. In contrast, the young mortgage offers financing to users aged between 18 and 24 years.
Mortgage for officials: being a state worker means that we will have higher income and a more solvent profile, this will make us show more security for the bank. For this reason, banks offer better mortgage loan conditions to this type of profile.
Mortgages for the self-employed: if we are self-employed and want to apply for a mortgage, the banks will require us to provide more guarantees that we can afford the debt. Normally, in this type of mortgages the amortization periods are lower, therefore, the quotas will be higher and, in addition, tend to increase interest.
Reverse mortgage: this mortgage is intended for people over 65 or with a disability of 33% or higher. The bank will pay the client for the home he offers as a guarantee of payment. Therefore, the bank will not recover the money until the death of the client. It is worth mentioning that this practice is not very common nowadays.
What type of financing do mortgage loans offer?
During the financial crisis the banking entities put more obstacles when granting a mortgage and among the measures they took was the reduction in financing. Currently, we mainly find two types of financing:
Mortgages with partial financing: the vast majority of banks offer 80% financing, which means that in order to buy a home we will need the remaining 20%, in addition to 15% for mortgage and purchase and sale expenses. It should be remembered that the Supreme Court ruled that notary, administrative and registry expenses should be shared between the client and the bank, while the IAJD will always have to assume the mortgaged one.
Mortgages 100% financing: although today this type of mortgage is not so common, we find some banks that offer all the financing. However, the requirements that we will have to comply with will not be the same as for the rest of the mortgages. We should mainly have a much more solvent profile and offer double payment guarantee. In order to be able to obtain the totality of the financing normally the banks offer to contract a mortgage for their portfolio of flats. The bank floors that normally come from foreclosures to customers who could not afford the payment. In the following video we explain in more detail how we can get one of these products.