The Spanish Mortgage Options and Costs

Once we have reviewed your financial situation, and agreed on a loan amount, you then need to decide between a fixed or variable rate mortgage. This can be a difficult choice and the most suitable option will depend on your risk profile, personal preferences and the overall cost of borrowing. See below for a brief explanation of the different types of rates and the costs involved in the mortgage process in Spain.

Fixed Mortgage

Fixed Mortgage:
The interest rate remains fixed for the life (or term) of the loan.

Variable Mortgage

Variable Mortgage:
The interest varies according to the contract details of the loan.

Index:
Most banks in Spain will use Euribor as the basis for calculating rates, revising the rate every 6 or 12 months. Euribor reflects the Euro Interbank Offered Rate. The reference to the date is how often the rate is recalculated and therefore how volatile it is.

Margin:
The margin reflects the profits and costs of the bank. The range is normally from approximately 1.5% to 3.5%. The margin (or bank spread) varies from bank to bank and can also change depending on the general economic situation.
Some banks will provide a capped product, which means there will always be a ceiling on the rate.

Extra Information

The effective rate can often be improved by meeting additional requirements specified by the lending bank. Usually this means contracting your life and home insurance with the bank, and if you are Spanish resident, also receiving your salary into an account at the same bank. For non-residents, an alternative to the salary requirement can be to contract other insurance or financial products through the bank. Again, we are here to advise, so don’t hesitate to contact us if you have any queries.

Costs

The total cost of setting up a mortgage in Spain normally ends up being between 10-14% of the purchase price. This variation is partly because some of the fees are fixed, meaning that regardless of the purchase price they will remain the same, resulting in a higher percentage for lower priced properties. In order to know the annual cost of your mortgage, we look at the ‘Tasa Anual Equivalente’ (TAE) which not only includes the interest rate but all of the costs related to the mortgage. It is mandatory for the banks to provide clients with this information.

Bank Commissions:

Opening fee: can be 1% of the loan amount but many banks do not charge an opening fee at all.

Early repayment fee: the legal maximum for fixed rate loans is 2% during the first ten years and 1.5% afterwards. For variable rate mortgages, the fee works in one of two ways. The bank can charge either 0.25% upon repayment during the first 3 years and nil thereafter; or they can charge 0.15% during the first 5 years and nil thereafter.

Changing to a fixed rate mortgage:
Within the first three years of a mortgage – 0.15% .
Within the third to fifth year of a mortgage – no charge.
 After the fifth year of a mortgage – no charge.

Early repayment fee for fixed rate mortgages:
During the first 10 years of a mortgage – 2%
 After 10 years of a mortgage – 1.5%

Early repayment fee for variable rate mortgages:
Spanish banks have two options if they want to charge an early repayment fee in a variable rate mortgage: 
1. If the bank wants to have the option of charging the fee during the first three years of a mortgage, it is 0.25%. When the three year option is applied, there will be no repayment fee after the first three years.  
2. If the bank wants to have the option of charging the fee during the first five years of a mortgage, it is 0.15%. When the five year option is applied, there will be no early repayment fee after the first five years.

• Re-mortgage fee: usually 1% of the loan amount remaining.

Third party costs:

These include valuation, registry, notary and gestoria fees. The notary will have to prepare two deeds, one for the property and one for the mortgage, and there is a separate set of fees associated with each deed. The client will only pay the fees involved with the property sale. The bank is responsible for paying the mortgage related costs.

Broker Remuneration:

Free initial eligibility study: The BROKER informs the CLIENTS that the initial eligibility study and feedback are free of charge.

Administration Fee: The BROKER charges the CLIENT an administration fee of 495€ once the process begins formally. The formal process consists of collating the necessary documentation and presenting it to the banks with the objective of presenting the CLIENT with one or more formal bank approval(s), as well as arranging the opening of a bank account with the lender if required. This fee can cover multiple applications with different banks and/or different properties. It does not have an expiry date and is only charged once per actual property purchase. It is refundable according to a REFUND AND CANCELLATION POLICY.

Approval Fee: This fee is due when the CLIENT’S complete file has been assessed by the lender’s risk department and they provide confirmation of the approval. This is a separate fee to the Administration Fee and is payable upon approval of the mortgage. It is important to note that this fee is based on the approved mortgage amount and is due regardless of the valuation result and the consequences thereof. The fee is 0.75% of the approved mortgage amount (with a minimum of 999€) and is payable within seven days of the date that the approval is given. If the approval expires, the BROKER will aim to renew that approval with the same lender. If that is not possible, the BROKER will aim to find an alternative lender. The CLIENT will receive the final binding mortgage offer (the so called FEIN) after the valuation has taken place.

Taxes:

Property tax varies from region to region and the tax is different when buying a second-hand property compared to a newbuild. For second-hand properties the tax is referred to as ITP, whereas for new builds it is called IVA (VAT). These taxes are usually somewhere between 8% and 10% of the property price.

Mortgage tax commonly known as AJD (Actos Juridicos Documentados), used to be paid by the client but after a legislation change in November 2018 is now covered by the banks. The effective cost usually ranges from 1.5% to 2% of the mortgage amount and is calculated on the so called “responsabilidad hipotecario” (mortgage responsibility), so the saving for the client is significant. On top of this, the new mortgage legislation will ensure that the other mortgage related costs (except the valuation and opening fee) are covered by the banks as well, adding further savings for the client.

Real Life Example:

This is a real life example of the cost breakdown. In the example, the mortgage is 100.000 euros and the property purchase price is of 175.000 euros. The taxes and costs represent 10.50% of the purchase price.

*Note that AJD is not only due on mortgages but also payable on new-built property on top of IVA (VAT). It is charged as a percentage of the property price. Again, the actual percentage varies from region to region and ranges from 0.5%-1.5%. The client is responsible for the payment of AJD on new-built property, so this is an important factor to consider when budgeting to avoid nasty surprises.

Property costs	€	Mortgage costs	€
Property tax	14,000	Mortgage tax (AJD)	0
Notary fees for property deed	720	Notary fees for mortgage deed	0
Registry deed	505	Registry fee	0
Gestoria deed	232	Gestoria fee	0
Sub-total	15,457	Bank opening fee	1,000
		Valuation fee	360
		Administration fee	495
		Approval fee	999
		Sub-total	2,854
COSTS TOTAL	18,311

MORTGAGES IN SPAIN

Spectrum International Mortgages