2018 will be a year in which the national real estate market will continue to settle and supply and demand must still adjust a little more, and in this slow but steady dance, banks are changing the type of mortgage that until now offered and consolidated offering fixed-rate mortgages.
First of all, and to continue delving into the issue of fixed or variable term mortgages, what we have to keep in mind is that the majority of fixed mortgages in Spain are with a French amortization system or a constant quota, this does not mean that the quota remains constant for 30 or 40 years of the term.
However pure time mortgages, so to speak, we can be sure that each month, until the end, we will pay the same fee.
But before continuing, it is time for us to see the singularities of a variable and a fixed mortgage.
The variable mortgage.
A variable rate mortgage loan is the type of loan that is characterized by having an interest rate composed of a fixed spread added to a reference index (usually the Euribor).
This implies that the cost of monthly payments may vary depending on the variations of the benchmark. Normally, the Euribor data of the month in which the mortgage was signed will be applied and the interest rate will be updated every six months based on the last value of the Euribor.
In the most favorable scenario, when hiring a variable rate mortgage, we have to know that the Euribor is now at historic lows, with a price of 0.156%, which gives rise to very affordable quotas. Now, it does not take anything more than looking back to its historical peak of July 2008, with a quote of 5.39% to see the breakdown that I can produce in the family economy of Spanish families.
If we take as an example that an average mortgage of 125,000 euros to 20 years, with a differential of 1%, the current quotas with the minimum Euribor cited above result in 679.45 euros per month. However, with the Euribor at maximum, the same mortgage would mean a monthly cost of 1,108.67 euros, something that can endanger our family economy.
The fixed mortgage.
Fixed mortgages are a type of mortgage loan where the same interest rate is applied during the entire duration of the loan.
In this case, the interest rate is not subject to any reference index such as the Euribor, therefore, the monthly payment to be paid is always the same throughout the mortgage, even if the market interest rates go up or down.
This type of mortgage is the most granted right now. One of the reasons may be that banks are afraid of the fluctuation of the Euribor and that customers can not afford the payments, and it may be that with this modality they have verified that the clients can face the payments more easily.
In addition, the entry into force in 2018 of the new mortgage law, which gives legal security to the financial sector. Here we indicate a collection of elements that characterize this new law:
- Commissions for early cancellation are limited.
- Related sales are prohibited
- It facilitates the reconversion of mortgages in foreign currencies to mortgages in euros, at the request of the debtor.
- Incentives for the staff of banks are eliminated
- Changes the legal regime of financial intermediaries
Let's look at some more singularities of fixed-rate mortgages:
• Fixed-rate mortgages will be profitable provided that the nominal rate does not exceed 3% and that the mortgagee is not obliged to contract certain additional products such as insurance, which makes the final TAE rate more expensive.
• A fixed-rate mortgage is not suitable for all types of clients. There are clients to whom a variable rate fits them better than a fixed rate, for their income, for their ability to save and financial training. However, clients with less financial training should be advised to obtain a mortgage.2018 will be a year in which the national real estate market will continue to settle and supply and demand must still adjust a little more, and in this slow but steady dance, banks are changing the type of mortgage that until now offered and consolidated offering fixed-rate mortgages.
First of all, and to continue delving into the issue of fixed or variable term mortgages, what we have to keep in mind is that the majority of fixed mortgages in Spain are with a French amortization system or a constant quota, this does not mean that the quota remains constant for 30 or 40 years of the term.
However pure time mortgages, so to speak, we can be sure that each month, until the end, we will pay the same fee.
But before continuing, it is time for us to see the singularities of a variable and a fixed mortgage.
The variable mortgage.
A variable rate mortgage loan is the type of loan that is characterized by having an interest rate composed of a fixed spread added to a reference index (usually the Euribor).
This implies that the cost of monthly payments may vary depending on the variations of the benchmark. Normally, the Euribor data of the month in which the mortgage was signed will be applied and the interest rate will be updated every six months based on the last value of the Euribor.
In the most favorable scenario, when hiring a variable rate mortgage, we have to know that the Euribor is now at historic lows, with a price of 0.156%, which gives rise to very affordable quotas. Now, it does not take anything more than looking back to its historical peak of July 2008, with a quote of 5.39% to see the breakdown that I can produce in the family economy of Spanish families.
If we take as an example that an average mortgage of 125,000 euros to 20 years, with a differential of 1%, the current quotas with the minimum Euribor cited above result in 679.45 euros per month. However, with the Euribor at maximum, the same mortgage would mean a monthly cost of 1,108.67 euros, something that can endanger our family economy.
The fixed mortgage.
Fixed mortgages are a type of mortgage loan where the same interest rate is applied during the entire duration of the loan.
In this case, the interest rate is not subject to any reference index such as the Euribor, therefore, the monthly payment to be paid is always the same throughout the mortgage, even if the market interest rates go up or down.
This type of mortgage is the most granted right now. One of the reasons may be that banks are afraid of the fluctuation of the Euribor and that customers can not afford the payments, and it may be that with this modality they have verified that the clients can face the payments more easily.
In addition, the entry into force in 2018 of the new mortgage law, which gives legal security to the financial sector. Here we indicate a collection of elements that characterize this new law:
- Commissions for early cancellation are limited.
- Related sales are prohibited
- It facilitates the reconversion of mortgages in foreign currencies to mortgages in euros, at the request of the debtor.
- Incentives for the staff of banks are eliminated
- Changes the legal regime of financial intermediaries
Let's look at some more singularities of fixed-rate mortgages:
• Fixed-rate mortgages will be profitable provided that the nominal rate does not exceed 3% and that the mortgagee is not obliged to contract certain additional products such as insurance, which makes the final TAE rate more expensive.
• A fixed-rate mortgage is not suitable for all types of clients. There are clients to whom a variable rate fits them better than a fixed rate, for their income, for their ability to save and financial training. However, clients with less financial training should be advised to obtain a mortgage.