Legal tip 157. A guide for succesful house-buying. Part IV
Tuesday, October 6, 2009 @ 12:17 PM
I am not a mortgage specialist but as part of a buying process, let me give to you some concepts I have learnt from the Spanish Mortgage association. There is huge variety of brand names for mortgage loans depending to the public that Banks are trying to address. In reality the classification can be reduced to the following:
Fixed interest
The interest rate that is applied to the loan is permanent. They usually have a shorter repayment period and the commission for early repayment is higher.
Variable interest
The interest rate changes according to market prices. This rate is reviewed every twelve months generally. The repayment term is usually higher and the commission for early repayment can not exceed one percent.
Joint Interest
They have a fixed interest period and a variable interest one. The repayment period and the charges for early repayment are similar to those of variable interest. Risks are more diluted.
Fixed quota
The customer always pays the same mortgage fee regardless of fluctuating interest rates. The variable factor is the repayment period depending on whether rates rise or fall. Their main problem is uncertainty because the client never knows when he will end to pay the mortgage. In return for this he knows that the monthly mortgage is always the same.
Where do the Reference index come from?
They are objective indexes compiled on a monthly basis by the Bank of Spain. They can be found in almost every newspaper. Despite being extremely important to calculate loan’s costs, we generally pay very little attention to them.
Official indexes by Bank of Spain are:
- Banks Index: average of mortgage loan contracts of the Spanish market. Calculated with data that financial entities send to the Bank of Spain. It is expressed in TAE.
- Saving Banks Index: Same as above but for Savings Banks. It is also expressed in TAE.
- Average rate of all credit institutions: A compendium of the two abovementioned.
- Interbank rate one year "Euribor": simple arithmetic average of each month’s values at the rate published by the European Banking Federation
- Domestic public debt return: the average financial return of Treasury Bonds.
Maria
www.costaluzlawyers.es
Autumn ( Spain) by Martius at Flickr.com