STEPS TO BE FOLLOWED IN ORDER TO OBTAIN A MORTGAGE
BASIC INFORMATION REQUIRED TO REQUEST A MORTGAGE
- How much money do you need?
- How much can you ask for?
- What documents will I need to provide?
- What will the charges be?
- Which interest rate is best?
When you calculate how much money you need, remember that, apart from the proportion of the cost of the property which you are financing, you will need to pay the mortgage set-up fees, valuation fees, management fees, Notary and Land Registry fees, Stamp Duty, bank commission, insurance policies, etc.
As the bank will generally not lend you more than 70% of the valuation, you should have sufficient savings to cover 30% of the property’s value, plus the mortgage set-up fees. This amount of 70% is variable and dependent on the amount requested and your personal circumstances.
Banks will ask you to provide sufficient guarantees to show that you are able to make these payments. Your income will directly influence whether or not the mortgage is granted, and its conditions. The bank can insist that the family has a minimum income. If you have an indefinite work contract then you are more likely to be granted a mortgage than if you have a short-term one. The bank will also check that you are not on a defaulters’ list. It will also ask for your Identity Card, work history, recent pay slips, your last income tax return and details of other income as well as receipts referring to other loans, if applicable, etcetera.
Banks will generally determine that the monthly mortgage repayment amount is not more than 50% of the applicant’s monthly income.
The repayment quota will be made up of two amounts: capital and interest.
The amount requested, the duration of the mortgage and the interest rate will ensure that monthly repayments are more or less affordable. The interest rate may be fixed, variable or mixed.
A fixed rate is not usual. This means that the rate of interest will not change throughout the total duration of the mortgage. You will always know how much you will be paying, but it will not work out cheaper as the bank will always fix a higher interest rate.
The variable interest rate is the most common and is based on the benchmark Euribor rate. If the Euribor goes up or down, then your repayment will do the same. A differential is applied to this benchmark rate and this is what you should check when you request a mortgage.
Certain “obligations” which you will have to fulfil. You will have to take out property and life insurance policies, have your wages paid into your bank account, pay your bills by direct debit, etcetera. The bank cannot insist that you do this, but if you do not, it will mean that the differential is higher, and this will be reflected in the interest rate.
Commission is what the bank will charge for certain services, for example: assessment, arrangement fees, early repayment or cancellation of the mortgage, changes in conditions, etcetera. Some banks charge commission, others do not: some less than others. Keep it in mind.
The period of grace is an initial period for some mortgages during which no repayment is made and you only pay the interest. During this time, the repayment will be less, but it will increase the mortgages’ duration, and, in the long term, it will work out more expensive.
In lieu of payment consists of the mortgaged asset being given to the financial entity in order to cancel the debt. Include this when signing the mortgage constitution Title Deed. In this way and in the event of non-payment, the bank will keep the amount mortgaged and you will not be liable to pay with the remainder of your assets.
Floor clause is unfair and should disappear. If the Euribor falls below the minimum amount stipulated in your contract, you will be paying more interest than you should. Do not agree to this.
In the end, you have to weigh up the terms and conditions offered by the financial institutions, and decide if you are able to make the repayments, and with whom you will “be married” for (many) years.