Choosing a mortgage is one of the most important financial decisions in a person's life. The reason? It is a very long term loan, through which a significant amount of money is requested and which involves conditions that, sometimes, are not easy to understand.
To help you take the right steps before taking out a mortgage, we have identified the key issues that you will need to address before you can identify a good offer:
- Choose between a fixed or variable mortgage.
- Determine the repayment period that best suits your situation, finances and outgoings.
- Find out the maximum percentage of the total cost of the property that the bank is willing to finance.
- Examine the fees involved in a mortgage.
- What products would you have to purchase in order to achieve a better price for your mortgage
- Decide between a fixed or variable mortgage. As with any loan, a mortgage also involves the payment of interest. However, in this case you will find two options to choose from:
- Fixed Rate Mortgage: As the name suggests, this is an interest rate that does not vary throughout the life of the loan. You will pay the same amount throughout the entire life of the mortgage which will allow you to have more control over your financial planning, without any risks related to changes in the rates of interest.
- Variable Mortgage: Variable interest is calculated by adding together two components: a baseline rate (usually 12-month Euribor) and a differential, which is a percentage fixed by each bank and which never changes. However, the Euribor changes every month so, depending on the level set by this indicator, the interest to be paid may increase or decrease and, with it, the monthly mortgage payment
- Set a repayment period suited to your circumstances. When choosing a mortgage, you should also determine the years over which you want to repay your loan. Remember that the longer the period, the lower the payment will be that you have to make each month, but the higher the interest rate will be.
- Don't lose sight of the maximum amount you need to finance. Generally, banks do not usually grant more than 80% of the valuation figure (or purchase amount) of the property you wish to buy. In other words, if the property you wish to purchase costs 180,000 euros, the normal amount offered by banks will be no more than 144,000 euros. Of course, there may be times where that percentage is a little higher (or lower) and you will need to do some calculations to determine whether that proposal matches your financial circumstances.
- Examine the expenses and fees that you will have to pay. In addition to the costs associated with the purchase of a home and the arrangement of the mortgage itself, you should not forget that many offers include other additional costs. The most common of these are arrangement fees, early repayment fees (total and/or partial) and renewal fees. When selecting a good mortgage plan, don't forget to compare all of these costs to determine the most affordable option.
The new Law on Property Loan Agreements that came into force on 16 June 2019 regulates these fees by establishing maximum limits and encouraging a shift from variable to fixed-rate mortgages.
- Consider which additional products you are interested in purchasing in order to reduce the price of your mortgage. Sometimes banks may offer a lower interest rate when you purchase certain financial products, for example: Life Insurance, Home Insurance, a Current Account or Pension Plans.
Taking into account all of these factors, comparing and carefully calculating the monthly cost of your future mortgage is something that is worth spending time on.
Do you want to know how much you would have to pay monthly for your mortgage? With the Banco Santander Mortgage Simulator you can calculate your mortgage payment with just a few steps.