There is no doubt that after some disastrous years in which the economic crisis devastated the real estate sector as well as the pockets of the majority of Spaniards, everything seems to indicate that right now the market is experiencing a pronounced recovery marked by the increase in purchasing power of buyers and the low interest rates of mortgages offered by banks.
However, even though all the data sounds optimistic, when applying for a mortgage to purchase a home, you have to take a series of factors into account. In this article, we will explain the types of mortgages available in order to determine which is best for you. We will also give you some tips that will come in handy when choosing a bank or lending company.
Types of mortgages
Before purchasing a home and applying for a mortgage, many people believe that there are only two types of mortgages; the fixed interest rate or a variable interest rate. However, there are many other criteria that intervene in these financial products. Here we will explain them to you.
Types of mortgages based on interest rates
The interest rate is defined mainly as the proportion of the borrowed sum that the debtor must pay back to the creditor as compensation for the capital he has received. This means the borrower has to repay the money with interest and within a certain period of time as agreed with the lender. Generally, the interest rate is calculated by a percentage.
Following this calculation, we can distinguish between three types of different mortgages:
1. Fixed interest rate. This is when the interest rate remains unchanged throughout the term of the loan's repayment. This, on the one hand, offers security to the debtor as he knows exactly how much he will repay from the first installment until the last. Nowadays, it is easy to find banks that offer this type of mortgage for less than 2%.
2. Variable interest. The interest rate varies during the loan repayment period. Keep in mind that this varies depending on the Euribor plus a differential. At the moment, this indicator is on the downside and in negative, so the variable interest type of mortgage is the most profitable. However, we must not forget that up until a decade ago, it reached 5 points.
3. Mixed interest rate. As you can imagine, these mortgages combine characteristics of the two previous types. Because, in general, the fixed rate is applicable during the first few years and the rest do not enjoy a great demand at this time, although this has not always been the case.
Types of mortgages based on properties
The characteristics of the property and its intended use by the owner will also influence the type of mortgage given. It is necessary to differentiate between:
1. Mortgages for first time buyers. It is usual for banks to offer much more favourable conditions to applicants in case they want to buy their first home. This is the reason why, in general, the lenders offer up to 80% on the valuation price and a longer repayment term than normal. In fact, the term can exceed 30 years.
2. Mortgages for second homes. If the house to buy is not going to be used as a habitual residence, the bank usually imposes less favourable conditions for the buyer. In fact, they usually do not cover more than 60% of the valuation price and the repayment period is usually 25 years at the most. It must also be said that the lender will carefully assess the borrower's financial situation and even request for more than one guarantor.
Mortgages for special circumstances
The banks provide the granting of special mortgage loans in certain circumstances. The most important are the following:
1. Mortgage loans for officials. Being a civil worker, an autonomous community or a town hall is synonymous with solvency for banks, which is why it is usual for them to offer better and exclusive conditions for contracting the loan.
2. Mortgages for the self-employed. Quite the opposite as in the previous case. Self-employed workers tend to suffer from higher interest rates and shorter repayment terms than those who work for companies.
3. Mortgages for young people. Those who wish to purchase a home and are between 18 and 24 years of age also enjoy more favourable conditions.
4. Inverse mortgage loans. A product that has been known for a long time but has not been marketed in Spain. It is specifically intended for people with disabilities with up to equal 33% LTV and pensioners over 65 years of age. In these cases, the bank is the one that pays an agreed amount to the borrower in exchange for the house becoming theirs upon his death.