Mortgage Options & Costs
Once we have looked through your financial situation, and decided on a loan amount, you need to decide between a fixed or variable rate Spanish mortgage. This is a more difficult choice to advise you on, as this depends on your risk profile. See below for a brief explanation of the different types of rates and the costs involved in the mortgage process in Spain.
Fixed Mortgage v Variable Mortgage
The interest rate remains fixed for the life (or term) of the loan.
The interest rate is generally fixed for an initial period, after which it will periodically (for example, annually or monthly) adjust up or down following a specified market index. There are two aspects to consider when looking at the variable rate: the index and the margin.
- Index: Most banks in Spain will use the Euribor, 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.
The effective rate can often be improved by contracting different products and complying with certain requirements. Usually this means contracting your life and home insurance and if you are a resident, receiving your salary in the bank where you have the mortgage. For non-residents, an alternative to the salary can be to contract alternative products through the bank. Again, we are here to advise, so don’t hesitate to contact us if you have any queries.
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 cheaper properties.. In order to know the annual cost of your mortgage, we look at TAE (see explanation under the menu “Glossary”) which not only includes the interest rate but all of the costs related to the mortgage. It is mandatory for the banks to provide the clients with this information.
Opening fee: usually 1-2% of the loan amount.
Early repayment fee: the maximum for fixed rate loans is 2% during the first ten years and 1.5% afterwards. Spectrum International Mortgages are normally able to have this fee removed. 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 0% thereafter; or they can charge 0.15% during the first 5 years and 0% thereafter.
The charge for changing from a variable rate mortgage to a fixed rate mortgage can be set to 0.15% for the first 3 years of the mortgage. Thereafter it will be 0%.
FEES AS OF 1st JUNE 2019:
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 – 0%
After the fifth year of a mortgage – 0%
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:
The Spanish banks have 2 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 within the first three years of a mortgage, the fee is 0.25%. When the 3 years option is applied, the early repayment fee will be 0% after the first 3 years.
2. If the bank wants to have the option of charging the fee within the first five years of a mortgage, the fee is 0.15%. When the 5 years option is applied, the early repayment fee will be 0% after the first 5 years.
• Re-mortgage fee: usually 1% of the loan amount remaining.
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.
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, it is now covered by the banks. The effective cost usually ranges from around 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 coming into force in June 2019 will ensure that the other mortgage related costs (except the valuation and opening fee) are covered by the banks as well, adding additional savings to the client.
See below a real life example of a cost breakdown in accordance with the mortgage legislation as of June 2019. In the example, the mortgage is of 100.000 euros and the property purchase price is of 175.000 euros. The taxes and costs represent 9.61% of the purchase price.
|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 fee||505€||Registry fee||0€|
|Gestoria fee||232€||Gestoria fee||0€|
|Sub-total||15,457€||Bank opening fee||1,000€|
|COSTS TOTAL €16,817|
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
Real Life Example
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After roughly 2 years delay, the new mortgage law has been approved and should come into effect by June 2019. But what does it mean and how will it affect mortgages in Spain? In this article, I will cover what I believe to be the 10 main aspects of the new...read more