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Types of Mortgage in Spain

Once we have discussed your financial needs and situation, you will have the choice between fixed or variable rates. 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.

Mortgage types

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

Variable:
In this case, the interest rate is generally fixed for a period of time, after which it will periodically (for example, annually or monthly) adjust up or down to a certain market index (usually Euribor). There are 2 aspects to consider when looking at the variable rate: the index and the margin.

Index:
Most banks in Spain will use Euribor revising 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:
t costs money to provide a loan so the margin indicates the profits and costs of the bank. These normally range 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 other banks will provide a capped product, which means there will always be a ceiling on the rate that you get at the start.

Extra info:
The effective rate can normally 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 the alternative to the salary can be to contract an alarm system through the bank.

Costs
The total cost of setting up a mortgage in Spain normally sums up to be between 10-15% of the purchase price. It varies among other things because some of the fees are fixed, meaning that regardless of the purchase price they will remain the same, normally resulting in a higher percentage for cheaper properties. In order to know the annual cost of your mortgage, we look at TAE (see 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.

Below is an overview of the different fees and taxes you will pay.

Bank commissions:
Opening fee: usually 1% of the loan amount.
Early repayment fee: The maximum for variable as well as fixed rate loans is 0.5% for the first five years and 0.25% afterwards.
Rate compensation fee (Compensación por tipo de interés): For fixed rate loans only, banks are allowed to charge a further commission when repaying part of or the whole mortgage to compensate for their potential loss caused by the rate fluctuation.
Subrogation fee: usually 1% of the loan amount remaining.
Administration fees: Valuation, registry, notary and gestoria fees. The notary will have to prepare two deeds, one of the property and one for the mortgage and there is a separate set of fees associated with each deed.

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

Mortgage tax commonly known as AJD tax varies from region to region. It can range from around 2% to 2,5% of the mortgage amount. The amount is dependent on the mortgage amount, the interest to be charged and the mortgage costs. It is a statutory tax, so the banks have to charge a certain amount.

See below a real life example of a cost breakdown with a mortgage of a 100.000 euros and a property purchase price of 175.000 euros. In this example the actual costs represent 11,7% of the purchase price.

Property costs € Mortgage Costs €
Property tax – 14,000 Mortgage tax – 1,900
Notary fees for property deed – 720 Notary fees for mortgage deed – 1,200
Registry fee – 505 Notary fees for mortgage deed – 1,200
Registry fee – 505 Registry fee – 420
Gestioria fee – 232 Gestoria fee – 232
Sub-Total – 15,457 Bank opening fee – 1,000
Valuation fee – 360
Sub-total – 5,162
TOTAL – 20,619

A MORTGAGE EXAMPLE

Here we have created a very simple example of a mortgage for a resident and a non-resident in order to give an overview of the factors involved in the mortgage calculation.

Mortgage resident:
Looking at the client’s income, the maximum payment per month in this example is 600 Euros, as this makes the DTI 30%.
The property price is 200,000 Euros and the mortgage amount (LTV) is 80% (160,000 Euros). Under these circumstances the client will need a deposit of 60,000 Euros (20% for the deposit on the property and minimum 10% for costs).
Bearing the above in mind and supposing a 2% fixed interest rate over a 30-year period, this client will be paying 592 Euros per month for his mortgage which is just below a DTI of 30%.

RESIDENT
Income monthly – 3,000 Euros
Other debts monthly – 300 Euros
LTV – 80%
DTI 30% (max. payment per month) – 600 Euros
Duration of the mortgage – 30 years
Property value – 200,000 Euros
Interest rate – 2%
Deposit and fees (30%) – 60,000 Euros
Monthly mortgage payment – 592 Euros

Mortgage non-resident:
Below you see an equivalent example but with a non-resident. Again, the maximum payment per month in this example is 600 Euros, as this makes the DTI 30%.
The property price is 195,000 Euros and the mortgage amount (LTV) is 60% (117,000 Euros). Under these circumstances the client will need a deposit of 97,500 Euros (40% for the deposit on the property and minimum 10% for costs).
Bearing the above in mind and supposing a 2% fixed interest rate over a 20-year period, this client will be paying 592 Euros per month for his mortgage which is just below a DTI of 30%.

NON-RESIDENTS
Income monthly – 3,000 Euros
Outgoings monthly – 300 Euros
LTV – 60%
DTI 30% (max. payment per month) – 600 Euros
Duration of the mortgage – 20 years
Property value – 195,000 Euros
Interest rate – 2%
Deposit and fees (50%) – 97,500 Euros
Monthly mortgage payment – 592 Euros

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