Mortgage forms Spain
Mortgage Types
Spain has a different financing culture than the Netherlands. Spanish banks take a more traditional approach, focusing on paying off the mortgage. Consequently, the annuity mortgage is virtually the only form of mortgage offered. It is a challenge in Spain to get a picture of the true cost of a mortgage. A mortgage with the lowest interest rate may still end up being by far the most expensive due to expensive mandatory side products such as term life insurance.
The annuity mortgage is the most widely used form of mortgage in Spain. In the absence of mortgage interest deductions and a less sound retirement system, the focus in Spain is on paying off the loan through this form of mortgage.
Redemption-free is not currently offered in Spain to non-resident clients. Only for a certain profile of customers with high income and assets are there options for a grace loan. This is offered by some private banks who do so on the condition that a certain portion of private wealth will be invested under their management.
Some Spanish banks do not get excited about loan amounts below €100,000; in fact, they are not of sufficient commercial interest. Some banks even have a hard lower limit of €100,000.
Spanish banks usually offer either a fixed interest rate for the entire term or a variable interest rate. Some banks also offer fixed interest rates for, say, 5, 10 or 15 years.
The interest rate offered varies from bank to bank. Because most banks mandate one or more “side products” such as term life insurance, comparing the true price of the mortgage becomes very clouded. For example, interest rates are very low at some banks, but it is still the most expensive mortgage solution below the line because the mandatory side products are very expensive. Thus, transparency leaves much to be desired, and the danger of comparing apples to oranges lurks. The catch in Spain is quite often the mortality insurance; initially it is indicated as a footnote and formality, but when it comes down to it, the insurance premium often turns out to be sky-high and so does the effective interest rate of the mortgage.
Spanish finance culture is focused on paying off a mortgage quickly. Therefore, maturities of 25 or 20 years are quite common. Through Mortgage & Abroad, however, a 30-year term is possible. See more information on maturities under “Age and maturity”
A closing commission is common in Spanish banks. It ranges from ½% to 1½% of the loan amount.
The amount of the premium of a life insurance policy is quite often the closing item and therefore the snag with some Spanish banks. At the end of a mortgage application process, the penny drops and the insurance premium turns out to be sky-high. Often by then it is too late to apply to another bank. One Spanish bank even dares to suggest paying the entire premium for the entire term at once and co-financing it with the mortgage. This then involves, without exception, huge sums of tens of thousands of euros that must then be paid at once. When this is converted back to a monthly premium, it turns out to be nothing but a usurious premium. In addition, no refund will be made if the house is sold. Through Mortgage & Abroad, it is possible to take out a mortgage without mandatory side products. This does make what is offered transparent. See more information on term life insurance under “Age and Term”
Banks are commercial institutions, and especially for non-resident customers – for whom they have to go the extra mile – they often make it a condition that, in addition to the loan, other products must be purchased from this bank, such as a checking account and fire insurance. There are also banks that offer a discount on the interest rate if certain products are purchased. Mortgage & Abroad knows its way around this landscape and guides you past the pitfalls of overpriced products.
When repaying the loan early, a penalty may be due from Spanish banks. The rules on this vary from bank to bank. Consumers are better protected anyway than in the Netherlands, and the penalty for early repayment is subject to a legal maximum in Spain. For example, some banks allow up to 25% of the outstanding loan amount to be repaid early each year without penalty.
A bridging loan is possible if the house being bridged on is also in Spain. Bridging on a house located in the Netherlands or a country other than Spain is not possible.
The release of surplus value through a mortgage is not possible in Spain unless the amount to be released will be used to purchase another property. Releasing money for consumption purposes or to supplement retirement is therefore not possible.
It is still possible with some Spanish banks to apply for a so-called post-financing for up to 6 to 9 months after the purchase. In other words, recover the funds advanced for the purchase through a mortgage.
It is possible with some banks to get a mortgage if the buyer of the property is a Spanish company (usually an SL). However, it is very questionable whether buying through a Spanish legal form is really necessary and useful. The key question here is whether the (financial) advantages outweigh the disadvantages. Consult with Mortgage & Abroad about this.
