Hiring a mortgage loan is a long process that requires effort and dedication. Taking time in collecting information and carefully studying the options and possibilities is indispensable to achieve the best financing. Therefore, this guide aims to clarify each step, so that you have a little easier to enjoy the earlier your new home.
Recompile information and compare
If we have already decided to buy a home and need a mortgage loan, the first thing we must do is to previously collect all available information so as not to take any false steps. It is important to know the situation in the mortgage market, so we should look for, compare and study the offers of the more banks the better.
As a buyer, we must think that a mortgage loan adapts better to our needs: if we are able to cope with periodic payments, the repayment period, see what are our savings and add margins for unforeseen expenses. That being said, it is advisable to know our debt level and that it does not exceed 30-35% of the holder’s net income.
In this first step towards hiring our mortgage loan the key is to compare. When consulting different offers of mortgage loans from different entities or from one entity, we will be able to establish differences and better understand what they offer us.
During this information collection process, it is advisable to point out all the possible doubts so as to propose to the professionals. In the conditions and requirements of a mortgage loan, we find terms that can be difficult to understand and that can even be confused. Let’s look at some of the most important ones.
Types of mortgage loans
The fixed type For mortgage loans, the type made the monthly installment payable and the type of interest that will apply will not change during the life of the loan. Pay the same quota every month, although interest rates on the market rise or fall.
Variable type In the case of mortgage loans, the most common type is that the type of interest is linked to a reference index (the most common is Euribor). In this way, the monthly fee will vary according to the Euribor.
The mixed type These mortgages apply a fixed rate during the first years of the loan and then apply a variable interest with reference to the Euribor.
In what you have to fix to hire your mortgage loan
After this process of collecting information, we can begin to deepen the cost of our mortgage loan. Three important terms come into play here: TIN, TAE, and Euribor.
TIN is the acronym of Nominal Interest Rate, it is the price that the entities charge for lending money. This interest is calculated by applying a percentage or type on the capital loaned to the client. This percentage is applied to the pending capital repayment at any time. It does not include expenses and commissions.
The APR is the acronym for the Equivalent Annual Rate, the type of interest that indicates the effective cost of a loan for a given period. It is calculated according to a mathematical formula that takes into account the nominal interest rate of the operation, the frequency of the payments (monthly, quarterly, etc.), the bank commissions and some expenses generated by the operation. It allows comparing between different offers the effective cost of the same product.
The Euribor is an index that indicates the type of middle-term interest rate at which the main European financial institutions lend money to each other in the short term, which is why it fluctuates constantly. This constant oscillation of the Euribor is the one that defines the variation of the quota, which is usually revised biannually or annually.
The associated commissions
Another very important aspect of this process of selecting the mortgage loan is that of the associated commissions. In addition to facing a monthly payment during a period that generally goes from 20 to 30 years, depending on the bank in which we hire the mortgage loan, we will have to pay some commissions or others. Let’s see some of the most common:
Opening commission. It calculates the total of the mortgage loan. This commission pays at the beginning of the mortgage loan as compensation to the bank by the processes and management of the formalization of the loan.
Account commission associated with the mortgage. Some banks require us to open an account that will be used to manage the payment of quotas. This commission does not charge all the banking entities and in case we are already clients of the bank that will grant us the mortgage loan, this commission usually does not exist.
Commission for partial or total amortization. It takes place when the client pays in advance all or part of the capital pending repayment. It is the compensation to the banking entity for the administrative processes that the entity has to carry out, as well as for what it ceases to perceive as the interests of the capital that remains to be returned.
Most common requirements to access a mortgage
The main requirements that are asked when granting a mortgage loan have to do with the economic solvency of the client, although they are not the only ones.
– Have a fixed income. Economic stability is key to any concession of a mortgage. Our bank will ask payrolls and our work life in order to know our income stream better.
– Contribute initially at least 20% of the price of home appraisals. It is what is known as “entry” and it is a requirement that banks ask their clients. Therefore, it is very interesting to know the approximate appraisal value of the asset, since it is usually a “cut-off”. In accordance with Royal Decree 716/2009, on the regulation of the mortgage market, a maximum allowable loan limit is established for loans and credits, which normally entails that a financial institution does not grant mortgage loans over 80% of the appraisal value.