Taking out a mortgage is a complex process. There are various legal, financial, administrative, fiscal, civil, procedural regulations, etc. that are not always easy to understand, and a number of people are involved, such as banks, appraisers, agencies, notaries, registrars, etc., which can cause the long-suffering debtor considerable confusion.
The first thing to consider is whether we have a mortgage; in no case does the flat belong to the bank until the entire mortgage is paid.
But to focus the issue properly, we anticipate that we are going to refer only to bank loans with a mortgage on the debtor's habitual residence. Other mortgage loans may have some special features, which affect both their constitution and their execution in the event of non-payment, but we are not going to deal with them.
1.- What is a mortgage?
A mortgage is a guarantee that we give to the bank in exchange for lending us money. Through the mortgage, in the event of non-payment, the bank can promote the sale (before a judge or notary) of the property, under the agreed conditions, to collect the amount owed to it from the proceeds obtained.
I think the concept of a mortgage is better understood if we say that it is like consenting to a seizure of the property.,
Two issues must be highlighted:
a.- The bank does not have the right to directly take over the property in the event of non-payment of the debt, although this can sometimes happen if no buyers (bidders) are found, and within certain limits (60% of the appraisal value).
b.- On the other hand, in the event of non-payment, the debtor cannot demand that the Bank keep the property and release him from the debt. There is no mandatory payment in kind, which, although it can be agreed upon, is not very common.
This means that when taking out a mortgage, as a general rule, in the event of non-payment, we are also liable with the rest of our assets, which could be seized, within certain limits.
2.- The mortgage is a contract.
One of the parties (the bank) lends money and the other party (the debtor) agrees to return it under certain conditions, and grants a home as security for payment, as we have indicated in section 1.
Being a contract, it means that the mortgage can be negotiated..
One of the lessons we have learned from this crisis has been to stop asking for a mortgage loan from the bank manager we “know” or the one our friends “know” and simply accepting the conditions offered.
We must analyze these conditions and compare them with the conditions of other entities and choose the mortgage that best suits our needs.
Whatever mortgage we take out, it is advisable that the loan amount does not exceed 80% of the appraisal value of the property and that the amounts to be paid do not exceed 30% or 40% of our net income.
Obviously there can be many variables for each person, but in most cases, outside of those limits, the mortgage is very risky.
3.- What should I negotiate with the Bank?
Mortgage contracts are very long. But the wealth of information they contain can have the opposite effect, and turn into obscure documents.
In a summary exercise, the four basic aspects of negotiation with the bank are the following:
3.1.- The amount of the loanThat is, the amount they leave us, which will be determined by the value of the home we wish to purchase, which must be within our means and our needs.
It is not advisable to finance 100% of the value of the home, nor more than 80% of the appraisal value.
What we have said may seem obvious, but we must remember that in other times not too long ago some banks gave more money than was necessary to buy a home.
3.2.- The amortization period. That is to say, for how long we are going to be obligated to the bank and we are going to have to pay the "letter", which Although it is usual for it to be monthly, another system can be agreed upon.
We must remember that the longer the term, the lower the monthly payment, but the higher the overall cost of the operation. In any case, more than 30 years is not advisable.
Let's take an example: Loan of 150,000 euros at 3%:
20 YEAR TERM
Monthly fee: 831.90 euros
Total cost of interest.- 49,655.14 Euros.
So what we will pay is 199,655.14 euros
30 YEAR TERM:
Monthly fee.- 632.41 euros
Total cost of interest.- 77,666.18 Euros.
So what we will pay is 227,666.18 euros
TERM OF 40 YEARS.
Monthly fee: 536.98 euros
Total interest cost.- 107,748.78.
So what we will pay is 257,748.78 euros
3-3.- The interest rate.- What we are going to pay the Bank for lending us the money. I would like to emphasize that the interest rate depends on three factors: what the money costs the Bank, the remuneration it hopes to obtain and the risk premium.
The risk that the Bank assumes with each client is not the same, therefore, the interest rate cannot be the same for each person.
The global offers made by banks are based on the fulfilment of certain requirements, that is, they consider that all clients who can access the offer have a similar level of risk, determined based on their income and percentage of the loan based on the appraisal value of the home.
The rate can be fixed or variable and we must remember that the floor clause is not illegal..
3.4.- The commissions.
These are amounts other than interest that banks charge for the provision of services. The most common are: opening, early cancellation or withdrawal, subrogation of debtor, subrogation of creditor, compensation for interest rate and the commission for modification of conditions.
In any case, the whole issue of bank commissions in mortgage loans seems to be subject to a significant review, to provide greater transparency to the contracting process, as can be seen in this article. link.
3.5.- Compensations or links
These are services that must be contracted with the bank to access an interest rate. You must be very careful, because it can be cheaper to pay more interest than to have links. These links are characterized by a notable opacity of their cost. For more information on this subject, I refer to this entrance from my blog.
4.- How do I know that one mortgage is better than another? THE APR
What is more interesting? A loan with an interest rate of 2% or a loan with an interest rate of 3%? The one with the lowest interest rate seems more advantageous, since it is supposed to be cheaper, but this is not always the case, because the 2% rate may involve commissions and the 3% rate does not.
The comparison of offers is made through the APR, which is the result of a mathematical formula that determines in the form of %, the real cost of the loan including the nominal interest, commissions and the term of the operation.
Look at all the offers from any bank office and you will see that the TIN (nominal interest rate), which is what they say you will pay, is lower than the APR (annual equivalent rate), which is what you will actually pay..
And even with the same or lower APR, we must consider other factors, such as the guarantees that may be required, since it may be preferable not to ask parents or other people to guarantee the operation, and pay a little more, or we must check whether that APR is calculated taking into account the ties.
5.- Other mortgage expenses.
In addition to paying interest and fees, a mortgage will entail paying for an appraisal, deed, taxes, registration in the Property Registry and bank administration fees.
High amounts of funds are often required to cover these expenses. The most important thing is to provide justification for all these invoices.
6.- Get informed.
If there is one thing we can learn from all that has been said, it is that before signing up for a mortgage we must be well advised, to the point that the figure of mortgage intermediaries has emerged in practice. They are dedicated to finding the best mortgage within the conditions of each profile; they advise and find products for people with fewer savings.
However, the work of these professionals is usually more commercial than technical, which is why I consider it highly advisable to go to the Notary before signing.
7.- When and why to go to the Notary?
The law usually gives the notary little intervention in the phase prior to the signing of the deed, which is limited to the right of the debtors to examine the draft deed at least three days before signing, that is, when everything has already been negotiated.
Furthermore, this right is rarely used, and clients often go to the Notary in a hurry, without having thought about what they are going to sign and without having used the resources that the current legal system makes available to them.
If you do not go to the Notary to prepare the operation or seek external advice, the legal-tax design will be in the hands of the Bank, and will be legal, but focused on its interests, which are limited to trying to collect as quickly as possible what they are going to leave you.
Visiting the Notary before signing, and even during the mortgage negotiation phase, is highly recommended. It can help us compare mortgage offers, to legally and fiscally plan the operation in the most advantageous terms, to have arguments to negotiate with the bank, and to have peace of mind that the funding provisions they ask of us are correct.
I give examples from daily practice of certain banking requirements.
1.-They ask that my parents be named as usufructuaries in the deed of sale, even though it will be my habitual residence;
2.-I buy with my partner, but they tell me that I can only appear as the debtor on the mortgage;
3.-They force our parents to be debtors, even though they do not buy;
4.- I am told that only part of the loan cannot be guaranteed;
5.- They require a second mortgage with an agreement of equal rank or that another property be mortgaged.
6.- My parents have to mortgage their usual residence, when they have an apartment on the beach.
7.- I am going to build a house and they are asking me to donate half of it to my partner….;
8.- My seller wants to make a significant amount of the sale price withheld to pay charges or taxes;
9.- It seems that the appraisal does not work because the storage room or parking space of the house is not declared, or the property has more meters in the Cadastre than in the Registry..
11.- I have put in more money than my partner, but they tell me that we can only buy in equal parts.
12.- Interest bonuses are not recorded in writing.
Are all these requirements adequate? Are there other options without undermining the bank's position?
Taking out a mortgage in one way or another has consequences, usually of an economic nature, which sometimes manifest themselves in the present and other times in the longer term. The Bank may never do anything illegal, but it will only look out for its own interests or convenience, which has a justification, which is the banking organization itself, with legal advice far removed from the reality of the operations and which intends standardize all processes, when, on the contrary, the mortgage should be a tailor-made suit.
If the office manager believes in the transaction, he will surely go to the Notary Office to explain to his advisor how to carry out the transaction under the most advantageous terms.
As an example I refer to this entrance from my blog.
