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Remortgaging and refinancing in Spain

After putting up for years with a bad mortgage deal I have finally researched the market and made the move. I've waved goodbye to one spanish bank and went to a better one. I'll be blogging my 2p worth of knowledge I got from the experience.

Is it wise to load up on a Spanish mortgage right now?
07 April 2011

This is just a thought, usual disclaimers apply. But how about what seems to be the current thinking about the future of the euro: there are 2 speeds in Europe, one is Germany/France axis () and two the peripheral European countries. Could it be that the Euro will be split in 2 "versions"? I personally think it's the most viable option. Politically the German and French goverments can claim that they saved the euro and haven't abandoned their pet project, and the peripheral countries can devalue their currency kindof. Would this make the case for making sure you owe in Euros and you are net Pounds or US dollars? As bad as the situation may be in these other currencies, it definitely looks worse for the euro. Even the Swiss national bank has started putting restrictions on European bonds, which they are averse to doing because it makes their currency stronger.

Just food for thought....

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The day at the Notary
29 March 2011

These dreaded days at the Notary are never short. For the life of me I cannot understand why they can't prepare the documents in advance, subject to them seeing the original documents on the day of the signing! Anyway, the world cannot be changed in one day. Or one decade for that matter.

Remember to take the same documents that you used for your original mortgage/hipoteca. This may include an expired passport that is not valid. Don't panic if you've thrown that old passport away after renewing it, but it makes things a lot smoother on the day of signing your linked mortgage if you have all the original mortgage's supporting documents.

Allow plenty of time at the Notary, like with everything else in Spain. Especially so if there are other peripheral contracts to be signed with the new mortgage, for example if you are obliged to take a life insurance with the new bank etc.

Your new bank will handle all payments, so ensure that you have deposited enough funds in the new bank's account to cover the expenses needed. This may include the cancellation fee for the old bank (yes, you don't pay the old bank directly, all is handled by the new bank), any Notary fees, the tax for Notarised Documents (impuesto de actos juridicos in Spanish), etc..

And a word of advice: make sure you cash in all your loyalty points with the old bank because somehow I don't see them giving you that toaster after they lose you as a customer!


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Documentation needed for subrogacion mortgage
23 March 2011

Just a quick note to point out certain documentation points that you may not be aware of.

The same documentation that was used to contract your original mortgage has to be used for the linked / subrogacion mortgage. I.e. if you used your NIE and passport to take out the original loan, you will need to bring both your NIE and passport to the notary, otherwise it cannot be confirmed that you are the same person.

Another point is that if the original loan was made to 2 persons, say husband and wife, then again both have to be named on the subrogacion mortgage. I know this sounds too obvious but many have been fooled into believing that "the obvious" is what is done in Spain to their detriment!

Keep your money safe!

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Waiting periods for mortgages and other delays
21 March 2011

As I've mentioned in other posts, for linked (subrogacion) mortgages the new bank sends a document to the old bank detailing the new conditions that they have agreed with you. The old bank now has 15 days to respond. Just be aware that they will  probably take the full 15 days to issue the required documents, even if they have made it clear that their answer will be negative. Of course the reason is obvious, they gain time during which you will be probably making another payment towards your mortgage with them, just before you go. Such is life.

During this time the new bank is also sitting with their hands tied because their actions will depend on the old bank's answer, so don't expect much from that side either. All in all, expect a month's delay between having everything approved with the new bank and a new mortgage offer sorted out, and the actual signing. This may be critical if you perhaps have other ongoing business with the old bank and you want to keep everything "sweet" with them in the meantime.




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Is anybody lending in Spain?
16 March 2011

From my research over the last month it seems that very few banks are actually lending anything! Even with the new bailout on the backs of the working class, cajas and banks are not interested in giving mortgages, regardless of your creditworthiness. I've talked to BBVA, Banco de Andalucia, Barclays, Caja Granada, CAM, Santander, Banesto... Only Caja Granada and Barclays were actively interested in asking for my information to evaluate the case. I don't think this is a branch-specific condition, in fact, one of the bank employees said to me that they are just interested in surviving (off my taxes presumably), not taking risks.

I would be very interested what you readers experiences are. My intention was to provide some comparisons of rates/conditions but it's pointless if nobody is lending. Anyway, for what it's worth, I found that Barclays's Euribor + 0.59% was the lowest achievable rate.

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Effects of the Irish vote
28 February 2011

After a long absence for the long weekend here in Spain, I'm back. I'm collecting some numbers for bank mortgages as promised - meanwhile, the Irish vote has taken place so let's look at any effects on mortgage payers.

The Irish have had an overwhelming turnout, in effect sending a message that the bailout of the Irish banks is not acceptable as it happened. Of course, a flurry of politicinas have come out to do damage limitation as usual, coming up with statements like "the Irish voters were not part of the agreement to save the banks anyway". The audacity! But anyway, at a more pragmatic level, this might affect us euro-paying home owners because the Irish have in effect declared that they might leave the Eurozone. Unbelievable as it may sound, it may be their only choice - they default on their loans and go back to a devalued Punt. This will drop the Euro FX rate like a rock. In which case all sorts of things might happen, including interventions by the Swiss to prop it up as they always do (in vain). The most likely outcome in my opinion is the ECB raising rates to attract buyers and hold the Euro's value.

Of course all this will be done under the guise of "improving economy means higher prices so we are raising rates", but we will know better. Bear this in mind if you are negotiating interest rates or refinancing. Of course I might be wrong and the ECB prints yet another truckload to save the re-re-re-bankrupt from themselves, but politically I don't think so. Interest rates are the least controversial action that the populace will accept without revolution!

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Life insurance attached to mortgage
22 February 2011

Very often banks attach conditions to their mortgages, for example your account has to be a "nomina" account, or you need to buy one investment/pension product with them etc. Invariably, they also require you take out their life insurance. I'm guessing the commissions they make out of that warrant the pressure they give their clients.... but it might not be all negative. Bear in mind these 2 points that I personally was not aware before:

Ask your bank if they can include the life insurance cost as a one-off payment and merge it into the refinancing amount. It does not count as an increase of the hipoteca, i.e. it qualifies for subrogacion. (Normally you cannot subrogar and increase the amount, but including periferal costs is ok). Very often this will result in substantial savings too because you are paying ahead of time the whole insurance premium - I had a 60% saving over my existing monthly-payments life insurance.

If you are a couple and the mortgage is to be on both your names, check the weighting of the mortgage amount. Men usually pay much much much higher premiums - we are just made of weaker material obviously! So instead of the obvious 50% of the mortgage payable on the man's death and 50% on the woman's, investigate if the bank can put 75% on the woman because that might save you a decent amount of money.

Next post, we put some numbers out comparing real spanish banks mortgages.

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Are big interest rate hikes coming up?
21 February 2011

I don't know how many Eyeonspain readers watch the Foreign Exchange markets, but I'm a firm believer that more people should in general. In fact, if I were ever Education Secretary this would be a 3 hour per week subject in the syllabus. It tells us a lot about life.

On the 18th of Feb something interesting happened in FX options markets: a huge sum of contracts on the EUR / USD pair was bought, to the value of 100,000,000,000 (100 billion) USDollars. Huge sums change hands in FX markets, but this is the options market and this is one big sum for one trade. In other words, someone has made a 100 billion dollar bet that Euro will fall against the dollar within one month. I.e. someone is expecting some big bank to fail in the Eurozone or interest rates to be raised by a big amount in the US.

Bear with me before I draw my conclusions, there is another relevant data point: the GBP has massively risen against the JPY (japanese yen) during February. This indicates again that an interest rate hike is imminent in the UK. This is also Euro-bearish, i.e. we would expect the value/popularity/strength of the Euro to drop dramatically from the high levels it's enjoying right now.

What does this mean for us mortgage payers? I believe that the ECB will have no choice but to follow suit. The bank(st)ers of the world will have to raise in unison because otherwise the imbalances will not be beneficial to anyone (carry trades will ensue), and combine that with yesterday's G20 statement "we will address the imbalances" and presto! you have simultaneous interest rate hikes accross the world.

Oh sure, I've been wrong more times than I've been right - but please consider your refinancing/remortgaging moves with this in mind. Watch March events carefully.

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The dreaded survey / tasacion
20 February 2011

Typical of the banks to have you pay for the survey of your property that they will hold ransom until you repay your mortgage. And they choose the surveyor on top! But anyway, what can you do? Actually, you can ensure that the bank makes the survey free subject to you taking up their mortgage. If for whatever reason the deal does not happen then you pay for the survey, but if you proceed with the mortgage then push them to absorb the cost.

Present as many IBI receipts from past years as you can. If you can show that your "valor catastral" (the official property price) has been revised upwards in the last few years then you can apply some "pressure" to the surveyor to estimate at a higher price. Remember, this is not like your typical UK survey, this is a lot more subjective as it only assesses the market value of the property. And if the bank is willing to give you money (otherwise they wouldn't be reaching the tasacion stage) then they will want the price to be estimated higher.

Make sure you are upto date with your community fees, they always have the possibility to check it, even if they don't always do.

Paint over any problem areas - don't worry about structural issues, they are not checked for these purposes. Amazing but true in my experience, surveyors for bank mortgages hardly spend any time inside the property.

Then sit back and cross your fingers!

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To subrogar or to cancelar? That's the many thousand euro question!
17 February 2011

This is probably one of the biggest dilemmas when shopping around for a mortgage to refinance your existing one. You have 2 basic choices:

- cancel your old mortgage, pay any early cancelation penalties if applicable (law says max 0.5% of outstanding amount), and contract new mortgage as you would normally.

- subrogate your mortgage via another bank. Forgive me for not knowing the correct term in english but in any case, in Spain you would need to know "subrogacion" to ask for it. This means you are changing lender but keeping the same mortgage (you cannot increase the amount), and this is a tax free transaction.

The laws in Spain have finally come out of their prehistoric conditions and now allow reasonable re-financing terms for subrogaciones. At first glance it seems the obvious and cheaper choice. However, there is one element that I personally was not aware of, and I present it in this post in case it benefits someone else. Excuse the laymans language, it's because I am one!

Assume you chose a new mortgage with a new bank. The conditions are better and you have made your calculations and you are happy. The new bank will make a "oferta vinculada", which is an offer to you linked to your existing mortgage. Your existing bank now has an opportunity to answer with their own offer. Now here comes the catch: if the "old" bank offers you a lower interest rate you *have* to take their offer. I cannot stress this enough: if your existing bank offers you a lower interest rate than your new bank does, you are obliged to accept the offer with the lowest interest rate. Regardless of what the overall benefits are. On top of it, the counter-offer need only be valid for one year, so not only the old bank stops your new deal from going through but they might punish you next year with their usual higher rate, or worse. I have had this repeatedly confirmed by various sources but if you know differently please let me (and all readers) know by leaving a message below.

What would I do in this case? I would say take the risk anyway, go for subrogacion, try to get a deal that does not have a high initial rate even if it means that overall you save money, and see if the old bank can come up with something anyway. In the meantime, agree with your new bank that your Plan B is that if it came to it, you would cancel your old mortgage and not go the subrogacion route. Yes, I know, not a very tidy way of doing business. But then you knew that about the world of banking the moment you walked into one as a kid! 

So to summarise, I personally would not cancel my mortgage outright, try subrogacion first, bearing in mind the unreasonableness of the existing law, and then judge accordingly depending on what the existing bank counter-offers. Good luck! I mean it.

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