Paying off an existing mortgage

I have a mortgage with the Deutsche bank in Spain. I owe aproximately 68k euros on it. Is it worth paying it off, or trying to get them to take an offer,  or transferring it into an English, Sterling, mortgage? If Spain came out of the euro and go back to Pesetas would my mortgage go up or down? Thanks Linda.

Hi Linda - you will need to check the terms of your mortgage but here in Spain there is normally an early repayment charge - rather than a discount.  I can overpay my Bancaja mortgage whenever I like but there is a 1% charge for any amount of early repayment.

I can't answer the rest of your question I'm afraid but Smiley on the forum is a mortgage expert so hopefully he will see your message and reply.  All I know is that the banks here are totally inflexible and don't offer the range of mortgage products you would see in the UK.

 I have had several letters from my mortgage companies offering me £5k to move my mortgage else where. This is about 10% of the value. The banks are prepared to take a hit just to get the loan of their books and some cash coming in. In a shop it would be called discounting or a sale.

I wont move my mortgages as the interest rate charged is very low. If you dont ask your bank you will never know, suppose it depends how much trouble your lender is in. You will find it harder to get a new mortgage though as it will be seen as remortgaging.

The advice I was given was to have the mortgage in the same currency you earn your money in - takes out the crystal ball advice on future exchange rates away. But there are pros and cons for each situation, as Claire T suggests talk to an IFA about your position.

Hi the simple rule for paying off a mortgage or other loan is, If you have savings that attract a lower interest than you mortgage, Say 3% on your Saving and 4% on your mortgage, pay off your mortgage or part of it, but keep some savings for a safety net. Also as said previously make sure you understand if and what penalties you have to pay to the Bank/mortgage company for paying off your mortgage earlier than the term agreed. In principle it is always advisable to pay off your mortgage sooner, the longer the term the more interest you will pay. It is also advisable to have a mortgage in the currency you get paid in. That was you avoid currency fluctuation and charges to change up currency.

Pasha

Hi Linda there have been a number of replies indicating various things. Thanks Claire for the vote of confidence

Everything depends on your personal situation - rate you are being charged by DB and what you might earn on the money if you hang on to it. But in essence I am inclined to agree with Highlevel and sit tight. If the single currency fails your mortgage balance in real terms against sterling is likely to be much less - much depends on politics of course but there is a very real chance that the Peseta would go through one or more devaluations which would make your payments less in real terms and the balance less in real terms.

Obvious downside is that at time of sale of the Spanish property the Peseta would buy less sterling when sent back to the UK. As CBRAMMELD says there are a couple of lenders out there offering an incentive to borrowers to shift their mortgage elsewhere - this is generally happening with lenders who are in trouble OR if the lender thinks the mortgage account holder is a high risk to default. Be mindful however that moving lenders would probably end up with a higher pay rate and remortgage in Spain is horrendously costly (typical costs 6 to 7%).

As to DB accepting an offer - good luck with that - as Johnzx says why should they? They are not in the same boat as most banks here with strong support from the parent group and in typical German fashion they have always been conservative in applying their lending policy - prudent lending has resulted in a relatively strong mortgage book.

As to switching it to a sterling mortgage it is not recognised legal tender in Spain so no lender would do it. The philosophy on mortgage related to income stands that a "mortgage should be in the currency one earns" OR failing that in the currency of the country where the asset (or liability depending on your view) is located.

Hi all.

My Question is slightly different , ..I have a mortgage in spain 50% of the prop value...and would like to pay it off mainly because  my savings in the uk are subjected to a very low interest rate and yeild one third of the mortgage fee in spain, so on paper it makes sense  to pay it off !  regardless of early repayment fee.

As I am not a resident and unsure how one day the country might feel towards non residents / foreigners... I feel that putting all my eggs in one basket might be a mistake, even worse ..someone someday will tell me the land grab rule takes place !!    though interest rates in the uk are low ..cash is still king !!

Any comments ??

Hang on Fireblade, I will try to find my crystal ball.  Its the only thing which can anwer your question

As Julian says Fireblade its a little like a crystal ball situation. There is no such thing as best advice because we are all different and your needs/wants wont be the same as mine.

You do need to consider a number of things though. You pay the mortgage off. Non resident/foreign property investors/owners have always been welcome in Spain and I wouldnt think that is likely to change - unless there is a Moroccan invasion again (some might say that has already happened ) or a real shift in dynamic such as a war.

You mention the land grab rule - is your property built on questionable land that might be subject to land grab? if so then is it a good idea to pay off a loan on a property that one day may be demolished - the bank has joint responsibility at the moment so will also fight to protect its "investment".

If the Euro collapses it is an unknown quantity as to where the Peseta will be valued but highly likely that along the way there will be a devaluation or two. Thus in real terms against your sterling the property will be worth less and the mortgage less as well - thus less expensive to redeem it. In this scenario if you pay off the loan now but at some stage in the future you want to sell the property its real value in terms of the sterling that your pesetas would buy would also be diminished. Personally I would say that if the intention is to keep the property in the long term you are best to keep the mortgage but it all depends on you of course.

Further to that perhaps you should consider looking around the market in the UK to find a savings vehicle that returns a higher yield than that you currently enjoy. You dont mention how much you are talking about but perhaps its worth talking to a UK IFA to see how you can make your money work harder.

Johnzx

In most cases it's still always best to pay off a mortgage unless you are netting a higher interest on your saving and then it depends on the amount of savings you have. Paying interest is always a cost to the borrower. I've started paying down my morgage in the uk and I have worked out it will now end 8 years earlier than the original term, saving me 8 year of interest, which for me is a significant amount of cash and more than I would get if it was in a savings account. Unless savings interest rates go up, which at the moment there is no sign of and the Bank of England has stated that they don't forsee things changing for the next 5 years.

For the average person who has a mortgage and a job, most finacial advise is pay down your morgage sooner if you have spare cash. Anyone can do the sums. The interest you pay over 25 years on the average mortgage is a lot of cash.

Everyone is different but I would advise any one to do the sums and see if they would benefit.

Thanks johnz and smiley.

Yes I def understand that money normally makes money , and I would rather spend the money within a business or another prop in UK and hopfully offset this against the spanish mortgage

I feel that the uk has better opertunities for keeping my investments safe, and laws here in the uk always seem clearer to me.

Excellent response John and exactly the scenario that illustrates we are all individuals with specific goals.

I tend to be old school with a view that all debt should be repaid as quickly as possible - however there have been occasions when it has made extremely good sense to me to borrow low and invest high and when I was in the UK I switched to interest only without a repayment vehicle but options to pay down the principal at will. Being charged base rate + 0.5 (base was varying either side of 4%) but being able to generate a yield of 20% plus made extremely good sense. Nonetheless for most people that dont "manage" their money or their investments I would be inclined to agree with Pasha.

My response to Fireblade was based on a very limited amount of information and I tried to cover every possible refraction of the crystal ball to his (without being sexist I assume his as its a BIG bike) what if scenarios

Banks do not make people aware that when they sell a property in Spain which has had or has a mortgage on it, it costs €5000 to have it removed from the Land Registry!

I agree with the golden rule.That is: if you have surplus savings  then pay off the mortgage providing the savings rate of return in real terms(taking account of tax on the savings income) is lower than the interest you are paying for your mortgage.

There are of course some variations,like early redemption costs, and if like me you have a Spanish mortgage in euros but your savings are in sterling in the UK.Then you have to look at the foreign exchange rate; the costs of transferring sterling to Spain;the interest payable on the mortgage in Spain;and the interest rate and tax on your savings in the UK.

As has been pointed out, the uncertainty of the euro is another factor.If I thought Spain would come out the eurozone and revert to the peseta then I would not pay off my mortgage early. I am sure if this happened,the value of the pound would go up against the re-introduced peseta because the euro is being kept high against the pound due to the strength of the German economy.Take Spain away from Germany and the re-introduced peseta would plummet.Overnight my mortgage would be cheaper in real terms.

However,it now seems that Spains exit from the euro is unlikely and that Germany,the IMF et al will ensure that Spain stays in the Euro.(But there are no guarantees!)

So I have been hedging my bets by taking advantage of the 1.24 exchange rate by partly paying off my mortgage (in my case I can pay 25% p.a. of the mortgage capital without incurring a penalty).

But now I worry that the rate of exchange will go up to 1.30 soon and I will have lost out by jumping too early!!!

Is there no end to this anxiety!!!! But I am lucky that I can make choices,and even if some are wrong it is not the end of the world. 

So you literally pay your money and take your chances.

We were is the situation last year that we decided that it was best to go ahead with an off plan purchase rather than lose our deposit which was made at 1.46 euro's to the pound in 2005.

When we purchased last year the rate was about 1.09 to the pound. The decision was to have as large a Spanish motrgage as possible, in case the euro collapses and the exchange rate worsens agains the pound, which it has.

The exchange rate is now about 1,24 euro's to the pound, an increase of around 12%. Therefore my pound is buying 12% more Euro's. So even if your pound is earning only 1percent in the UK, It's earnt you 12% more euro's this month than it did last year.

At the same time the value of your property in Pounds has gone down, but hopefully is the same in Euro's.

The basic problem with the failed experiment that is the Euro is that all the Economies are different and Spain's is significantly based on Tourism and Expats. It relies on Britain for alot of this. When the Euro can no longer be propped up by borrowing it will crash and local currencies will come back.

My view is that the euro will continue to slide, the pound will buy you more, and changing money back to pounds will earn you less.

For these reasons, I'm in no hurry to pay off my Spanish mortgage,.

Mike.

Mikeand Helen,

all the Economies are different and Spain's is significantly based on Tourism and Expats.

I think you'll find Tourism is circa 10% of Spanish GDP - important but significant? Even if you lump in construction which is circa 10% It's still not significant since all Tourism and Construction has not stopped.

David