As we said the other day, it seems that mortgages are back, or at least that is what can be deduced from the information campaigns of certain financial institutions, whose radio spots announce with great fanfare that in 2014, credit will be granted again.
In a previous post we discussed the subject of notary fees for a mortgage loan deed. In this post we will refer to the financial costs generated by a mortgage loan deed, that is, those costs that imply a remuneration for the bank: the interest rate, the late payment interest, the opening and/or study commission, the cancellation or withdrawal commission, the subrogation commission (either by changing bank or change of debtor) and other commissions that may be established depending on the financial institution, such as the issuance of debt payment certificates.
First of all, I would like to point out that taking out a mortgage loan can be a very important part of your life. Don't let the decisions be made for you. Get proper advice before signing (free of charge before a Notary) and never let the bank dictate the Notary before whom the mortgage is signed.
Having made this clarification, we will refer to the financial expenses, breaking them down into the following parts:
a.- The opening commission.
This is an amount paid to the bank for the mere fact that they grant you the loan. It is directly remuneration of the bank since it does not pay for any specific service, although it is often argued that, in reality, it is charged for the procedures that they must carry out, linked to the formalization and provision of the borrowed money to the client.
It is usually set as a percentage of the amount loaned, normally up to 1% in the case of mortgage loans, but it is not a mandatory fee and can be negotiated. The payment is a one-off and takes place at the time of signing the transaction.
To properly understand the opening commission, we will give an example. In the case of a loan of 100,000 euros, with an opening commission of 1%, that is, 1000 euros, it means that we will receive 99,000 and have to pay back 100,000 plus the corresponding interest..
b.- The interest rate. Rounding and floor clauses
This is the amount that the bank charges for lending money. The interest rate, in theoretical terms, depends on three variables: the price of money (how much the bank buys it for), the bank's remuneration and the client's risk premium. By this we mean that the interest rate can be different depending on the personal conditions of each person.
The interest rate can be fixed or variable. In the first case, the rate will always be the same, and therefore the loan instalment will not vary throughout the life of the operation; in the second case, the interest rate varies from time to time. Normally, in mortgage loans, the modification is semi-annually or annually, but there is no fixed rule, as it is also common to agree on an interest rate for the first three or five years that then changes on a semi-annual or annual basis. When the rate is variable, it is determined by adding a differential (for example 1) to the reference index (for example the Euribor).
In the past, it was common to round the interest rate to the nearest quarter or eighth of a point. That is, if the application of the variable rate and the spread gave, for example, 5.12%, rounding to the quarter implied a real rate of 5.25% and to the eighth 5.15%. Today, rounding to the eighth of a point is only permitted, and is not possible for loans granted to consumers.
In mortgage loans, it is possible to agree, although it is not obligatory, to apply a minimum and maximum rate, independently of the one that could result from the application of the reference index and the differential. This means that, if I have a floor of 3.75%, if the revision were to a Euribor (1.5% for example) plus 1, this Euribor plus 1 would not be applied, that is, 2.5%, but not 3.75%, which is the minimum limit agreed.
Nowadays, these clauses are not illegal, but their inclusion in the contract requires certain transparency requirements, including the signing of a handwritten declaration in the deed.
c.- The early cancellation fee.
This is a commission paid to the bank in cases where part or all of the amount owed is paid in advance. If part of the loan is paid in advance, the debtor has the option of reducing the instalment or reducing the repayment period of the loan. In such cases, a commission may be agreed upon, which is applied to the amount paid in advance, and which currently, at least in the case of home loans, is limited to 0.5% in the case where the repayment is made in the first five years of the loan and 0.25% in the case where it is made after the first five years of the loan.
For example, in the case of a loan of 100,000 euros, if we advance 50,000 euros, the commission would be 250 euros or 125 euros, depending on the time.
This is not a mandatory fee and may be lower than the legal maximums.
d.- The commission for interest rate risk.
Although it exists, it is rarely used. It only occurs when the interest rate variation periods are longer than one year. Rather than a technical explanation, we will give a home-made one. It is intended to protect the bank in those cases in which it makes very aggressive offers, offering a very low interest rate for the first few years, which is then compensated with a higher rate. In these cases, it may happen that the debtor, after the subsidized interest period has passed, changes bank after paying the debt. If such action causes a loss for the bank, it could demand the commission for interest rate risk, which is usually set at 5% of the outstanding capital at the time of cancellation.
e.- The debtor subrogation commission.
It applies in the event that we sell the mortgaged property and the new buyer takes over (keeps the mortgage). In such cases, the bank may reserve the right to charge a commission, which would be the same as a new opening commission, and applicable to the buyer. It is not obligatory.
F.- The commission for subrogation of creditor or change of bank.
This is essentially the same fee as the early cancellation fee, to which we refer.
g.- Other commissions.
There may be other fees, which are very diverse and depend on each financial institution, such as those for issuing checks, for issuing debt certificates, for currency exchange, etc.
All of them are negotiable, and in my opinion, the most frequent one, which is the issuance of a debt certificate, when it is for full payment of the loan, cannot be demanded as provided for in article 7 of law 41/2007.
