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Mark Mountney Rose Financial Planning

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16 Oct 2009 10:11:

Good day Dave.

It will depend on how you deem the 'best' deal. For example, is your driver the maximum borrowing, the best rate of interest, a fixed rate perhaps, the maximum 'Interest Only' term or indeed just a straight forward Repayment type (capital and interest).

If you have 40% available that implies a 70% mortgage taking into account the costs/fees of the purchase and mortgage.  But not necessarily so! By this I mean that a large number of properties being sold today are at a discount to the market and we are seeing bank valuations exceeding the contractual price. Where this is so, the need for a 70% reduces to perhaps 60% and then lending terms can be more attractive.

For example, let's assume a purchase of €100k and that you have €40k as an investment. 70% on a valuation coming in at the same level would be €70k. But, if the property valued at say €130k, then lending could be up to €90k, thus reducing your cash investment to €20k (€100k plus costs less €90k). Or, for better terms, you could pump in the €40k so the mortgage needed would be just the €70k = 53% of the value.

I hope that makes sense!

Most lenders base lending on the Annual Euribor plus a margin (to cover their costs). The lower the % of loan, the lower their perceived risk and the better the terms. Normally - in this tight lending market - the margin today would be 1.5% to 1.75%. Much higher than it used to be. But with the example 53% this could be negotiated to say 1.25% thus reducing the pay rate from as much as 3.5% to closer to 3%.

And then there is the issue of 'Interest Only' for the attractive lower monthly payments and added protection. These tend to come at a slight premium (0.25%) over an ordinary Repayment (capital & interest type). And, if the property is being purchased as a holiday home or investment, then cash flow is often important and thus Interest only that much more atrractive.

You see that 'best' is not as simple to respond to as one might expect!



Thread: Why is the Euribor rising again?

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12 Oct 2009 15:18:

Hi Hula.

To get back to your question as to the trend in Euribor (interest) rates.

Most banks in Spain base the pay rate of their mortgages on the Annual Euribor plus a margin. In fact, since their peak in the Autumn of last year, we have seen a steady decline in this rate following the ECB's reduction in the base rate. The peak in the Euribor Annual was circa 6% whilst today (Friday close) it was only 1.23%.

And the rate has been consistently nudging down over the last few months implying that the money traders do not envisage any rises in the base rate in the short term. However, not that the base rate is 1% and the EA 1.23% i.e. the markets have discounted a further fall in the base rate but rather a rise by 0.25%.

As to your mortgage, I would be surprised if the revised 'pay rate' greatly exceeds 3% (EA 1.23% say plus the bank's margin) so watch that! You should be looking at a significant fall from the present pay rate.

Hope that helps!



Thread: Why is the Euribor rising again?

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06 Aug 2009 10:30:

Hi Sinacism.

The short answer is no. I am afraid the mortgage lending market is very unsophisticated in Spain. Spanish lenders are very traditional and the majority, still, offer Repayment mortgages based on the Euribor or IRPH indices. 'Interest Only' was only introduced to Spain some 7 years or so ago but retain the link to the above indices.

The best that you can do to peg your rate is to look for a Fixed Rate for as long a term as possible. 10 years is the present maximum and the rate circa 5%. That is a premium of circa 2% of the majority of other mortgages, Euribor linked, where the pay rate will be 3% ish for new business but perhaps up to 4% for existing borrowers (penalty due to the lag of the annual Review system). The current 12 month Euribor rate satnds at 1.45% and falling but with increased bank margins (to assist their cash flow, of course) the pay rate pushes up to that 3% mark.

Hope that helps!



Thread: Cap and Collar Limits on Mortgages?

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17 Jul 2009 13:03:

This is not an unusual ploy by your bank; I have heard of such before. The bank's primary concern will be ongoing mortgage payments and, as they are probably loaded up with repossessed properties, they will do all that they can to remove the potential threat of another. The equity in the property is largely an irrelevance; they do not want to take any risks now.

The likely solution, as intimated by Maria, is a Remortgage to another bank to repay both the existing mortgage and loan. If you do intend to sell soon then look for an 'Interest Only' product to keep the obligations to the new lender at an absolute minimum.

However, it seems that your existing arrangement (with a payment of €900 per month) may be set up on a Repayment basis (Capital and Interest); have you not asked the lender if they will consider an 'Interest Only' period for you for a year or so to give you that window of time to ese the pressure and allow the sale? Many if not most banks will offer such now, but only if you ask for it!



Thread: Personal Loan

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25 Jun 2009 11:20:

Hi Photopaul.

There are 2 elements to this; 1) the legal issues as raised in other postings and 2) the financial issues.

I would agree that, based on the info you have provided, you really should seek legal advice as it could well be that your parents have a claim to release them from any obligation. Maria is a good starting point!

The financial issues cannot be separated from the legal aspects of a potential claim but I thought you might appreciate a comment on the facts as they seem to be today.

Maria will tell you that there is a facility to hand the keys back to the lender to release you from the mortgage. There is always the possibility of a shortfall when the bank eventually sell and, yes, they can follow you to the UK for that. Possible if not probable, especially when you consider the legal issues raised.

The most poignant fact seems to be that the valuation, perhaps excessive 2 years ago, is certainly much lower today and probably less than the mortgage balance. That being so, the question that your parents need to answer is do they really want to hol onto this property, to maintain the mortgage for how many years until the valuation returns to a point when they can sell and clear the debt in it's entirety. Bearing in mind the state of the market generally and then specifically the physical state of the development, how long will that be? At best several years I would suggest and I am being optimistic it seems!

Perhaps your parents should, in seeking that legal advice, give serious consideration to handing the keys back. Maria has posted on several strings of this nature and will better advise.



Thread: Had to complete new mortgage with life insurance to keep property

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