6 other questions you should consider before taking out a mortgage
Last week I published a post with 5 things you should know before signing a mortgage, and this week I continue addressing fundamental issues through these 6 new aspects to consider before taking out a mortgage.
Important questions before taking out a mortgage
Among the things to consider when applying for a mortgage are the questions related to the bank we approach.
After the reform of March 2019, most of the expenses when taking out a mortgage are borne by the bank. It is the entity itself that today must pay the mortgage taxes, the Notary, Land Registry and management fees.
But is there any expense that the client must pay? Yes, mainly the property appraisal costs, if any, the opening commission, and the notarial copies that the client requests from the notary that are not included in the fee.
At JLA Notarios we recommend that the client does not request an authorised copy of the mortgage, as they will have to pay for it themselves and not the bank, when it is an unnecessary expense, since the effectiveness of the authorised copy benefits the bank. We send a simple electronic copy to your email free of charge.
If you wish to find out more information, here is an article dedicated to mortgage expenses:
Requirements to apply for a mortgage
To take out a mortgage, the requirements may vary between different financial institutions. However, stable and sufficient income to cover the instalments (it is recommended that they do not exceed 40% of your monthly income), a permanent and stable employment contract, an initial contribution of savings along with a good credit history can help make the contracting favourable.
What is the repayment term of a mortgage?
The repayment term is the duration or life of the loan. The longer this term, the lower the monthly instalment to be paid, although the total amount to be paid will increase due to the accrual of a greater amount of interest.
This repayment term (10, 20 or 30 years, for example) will be divided into monthly instalments (120, 240 or 360, respectively) and each instalment will pay the proportional part of the loan plus the proportional part of the interest. But it can be done through two systems (the most common ones):
- French amortisation system. This system is the most common. In it, the amount of the instalments does not vary, it remains constant. In this way, more interest is paid at the beginning and less capital, which balances out over time.
- German amortisation system. It is uncommon. In this system, the capital payment is always constant, what varies is the amount of interest to be paid, which will be higher at the beginning and lower at the end of the loan term. Therefore, the monthly instalment to be paid will decrease.
It is important to consult the amortisation schedule included in the documentation provided by the bank before taking out a mortgage and that the Notary should explain it carefully in the deed prior to the mortgage. In this schedule, you can see the amount of capital and interest paid month by month.
Is it possible to pay off a mortgage early?
Another of the questions you should consider before taking out a mortgage is its possible repayment. And, yes, it is possible, you are within your rights. But there are several things to know. Firstly, the cancellation can be total or partial.
Partial repayment. This payment neither extinguishes the debt nor releases the debtor, but it does reduce the debt and, consequently, the interest that will ultimately be paid. In this case, you can choose to reduce the repayment term and maintain the amount that has been paid monthly, or reduce the monthly amount paid while maintaining the initial duration of the loan.
However, this cancellation may generate some type of payment to the bank as an early cancellation fee, especially regarding the financial loss (an issue we will address in another post). Therefore, it is advisable to speak with the bank beforehand about these fees and the financial loss, in order to avoid surprises.
Total repayment. The entire debt is paid off and the loan is extinguished. You do not have to pay anything else to the bank and it represents a release and also a considerable saving on interest that will no longer accrue in favour of the bank. The mortgage is extinguished and only the formal record remains in the Land Registry of the full payment of the mortgage, through the granting of a mortgage cancellation deed and its registration in the Land Registry. We have a post that deals with mortgage cancellation:
And if I don't pay the mortgage, what happens? How far does my responsibility go?
We hope it never happens, but if this situation arises and you cannot pay the mortgage, you should know what you are facing, as the late payment interest will begin to accrue, which for individuals is the ordinary interest rate (to which bonuses are applied without any discount) plus 3%. Two types of situations must be distinguished; an isolated non-payment or one prolonged over time.
If an isolated non-payment occurs, due to a family situation or simply a delay in paying the salary, you should know that this delay entails a penalty. Firstly, you will have to pay the late payment interest on that instalment, not on the total outstanding capital. Secondly, if there is a commission for debtor positions, they may charge you that amount if the bank initiates procedures to claim the payment.
Eviction for mortgage non-payment
If the payment is prolonged over time, in addition to the above, you should know that the bank may enforce the mortgage and sell your house. For the bank to be able to enforce the mortgage, a certain amount or percentage of non-payment must be reached. During the first half of the mortgage loan term, non-payment should amount to 3% of the capital or 12 instalments. If the non-payment occurs during the second half, the amount owed and unpaid must be 7% of the capital or 15 instalments. If you have this debt with the bank, it will give you 30 days to catch up, with the warning that, otherwise, it may enforce the mortgage.
If you reach this point and the mortgage is enforced, although I hope it never comes to that, the property may be awarded or sold for more than the debt or for a lesser amount. In the first case, if the sale or award value is higher than the debt, the bank must pay the difference to the client. In the second case, if it is less than the debt, the debtor is liable with all their present and future assets until the debt to the bank is paid.
What is mortgage default by one of the parties?
Likewise, and speaking of responsibility, in the case that there are several debtors, their liability towards the bank is joint and several. This means that the debtors do not answer to the bank for their share, but for the whole. The bank may claim the entire debt from any of the debtors and once paid by one, the payer may claim from the others the part that corresponds to them.
Updates in the 2024 mortgage law
In order to alleviate or reduce the effects that the rise in interest rates is causing on mortgage loans for primary residences, the government approved the new code of good banking practices. Find more information about the measures it includes to protect citizens who have to pay their mortgage from the harmful effects of inflation.
Thus, ICO Guarantees have recently emerged to be able to finance 100% of the purchase when taking out a mortgage, in applicable cases
What to ask the Notary about the mortgage?
The bank recommends their Notary to me. Who has the right to choose the Notary?
The bank usually has certain trusted Notaries, and often recommends them to its clients, but you should know that it is the client who has the right to freely choose the Notary, even if the bank insists. You should choose a Notary you trust, and if you don't know any, look for one or ask. The Notary is a key figure in the entire process, as they must explain all the important aspects so that you are sure of what you are signing before taking out a mortgage. In mortgages, the Notary primarily protects consumers against the banks, even though it is the banking institutions that pay the Notary the costs of the mortgage, so it is important that you are the one who chooses the Notary.
If you want more information, you can read this other blog article:
How many times do you have to go to the Notary to sign a mortgage?
Currently, following the entry into force of Law 5/2019, it is necessary to go to the Notary on two occasions: for the preliminary mortgage deed before contracting a mortgage, also known as the transparency deed, and to sign the mortgage deed.
Preliminary mortgage deed or Material Transparency Deed
In this act, which takes place before signing a mortgage, which is mandatory and also known as the material transparency record, your trusted Notary that you have selected will explain each aspect of your mortgage (the capital, interest rate, fees, etc.) and will explain the consequences of the mortgage and your responsibility. They will also question you to ensure that you have understood it.
This act, which must be signed at least the day before the mortgage signing, is private between you and the Notary, so the bank cannot attend the signing. This way you will have complete freedom to ask whatever you need and on the day of the mortgage signing you will have full knowledge of what you are signing. Nothing signed in this record is binding for consumers.
What are the questions in the transparency certificate? What questions does the Notary ask about the mortgage during this act?
There are certain questions that can be asked during the mortgage notarial deed. We ask them with the aim of ensuring that the characteristics of the mortgage contract, especially the FEIN and FIAE sheets, are correctly understood. It is a mortgage test or some questions that are asked during the transparency deed and are related to:
- The contract and the total loan amount.
- The total financed capital and the monthly amount.
- The repayment term.
- The chosen interest rate and its impact if it changed in variable mortgages.
- The linked products.
- The delivery of documentation.
- The fees to be paid for opening, early repayment or cancellation.
- The consequence of missed payments.
Mortgage deed
The mortgage deed is the act of formalising the mortgage. The loan conditions will be read in your presence and that of the bank, and they must match the information explained to you on the day of the preliminary deed, with the possibility of more favourable conditions for consumers than those in the preliminary deed but never more detrimental. To sign the mortgage, 10 days must pass from the moment the bank delivered the documents to you and uploaded them to the platform, except in Catalonia, where this period is 14 days, although you can waive the last four days, but afterwards you must ratify the mortgage.
Extra: Questions about Government Mortgage Assistance and other banking solutions before taking out a mortgage
Furthermore, financial aid and products may be the seventh of the questions you should consider before taking out your mortgage.
The latest mortgage hiring aids are summarised in the ICO Guarantees 2024. These mortgage aids for young people allow financing the purchase of a property up to 100%. Until now, the amount financed was 80%, but this 20% would be guaranteed by the Official Credit Institute. It is a measure designed for young people who are not older than 35 years and will be in force until 31 December 2025.
In this case, we are talking about a banking product in which the value of a home is converted into a monthly income. It is generally intended for people over 65 years old or people with severe dependency and is regulated by Law 41/2007. To apply for a reverse mortgage, we must be the owners of a property.
Those who ask what a reverse mortgage is also do so because of its advantages and disadvantages. The first is characterised by the obtaining of additional income for people, while the second is characterised by the reduction of the value of the inheritance and by involving the payment of loans and commissions afterwards.
Although there are no specific aids for disabled people, there are tax deductions on the payment of the Property Transfer Tax (TPO), which is the tax paid when buying a property.
Certain regions also allocate a percentage of social housing or the purchase with reduced VAT. And not only in cases of sale but also in rentals and rehabilitation.
JLA, Consultancy and Mortgage Deed in Barcelona
I hope that this article, which poses 6 questions you should consider before taking out a mortgage, has resolved some doubts, as it is very important to thoroughly understand the fundamental aspects of a mortgage, because it will be one of the main debts you have throughout your life. For this reason, it is highly recommended to go to a reliable notary office that knows how to professionally handle each particular case and that is chosen by the consumer receiving the loan.
At JLA Notarios (bcn@jlanotarios.com), we are at your disposal in our notary office in Barcelona, for any doubts or questions about the processing of mortgages in general or the signing of mortgages before a Notary. Do not hesitate to contact us if you need our services, we will be delighted to assist you!
