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Mortgages
What should I consider when comparing mortgages?
When you want to apply for a mortgage, it is always a good idea to understand and compare various aspects so you can choose the best mortgage for your needs and financial situation. In addition to interest rates, it can also be useful to look at other aspects that might make the mortgage more affordable.
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Interest rate
This is the first thing we all look at when we compare mortgages. You first need to decide whether a fixed or variable-rate mortgage is the most suitable for you.
In the case of fixed-rate mortgages, the lowest rate is the best. Although it is easier to plan with this type of mortgage, they can also be more expensive.
You may save a great deal with a variable-rate mortgage, or not, depending on the performance of the Euribor. We must also check that the mortgages we are comparing are applying the spread to the same benchmark index. Before deciding, it is worth looking at the historical performance of the benchmark (generally, the Euribor), to see if it is suitable for our needs. A variable-rate mortgage is calculated by adding a spread to a benchmark rate. Variable-rate mortgages can guarantee a certain price at the time they are arranged, but we cannot guarantee what the final cost will be.
Mortgage repayment period
The longer the repayment period, the smaller the repayments. But the shorter the term, the less interest you pay. We have to find a balance based on our personal situation, saving capacity, etc.
Purpose of the mortgage
When comparing mortgages, we should always ensure they have the same purpose. A mortgage loan to change banks is not the same as a mortgage to acquire a first or second home. Every case and each associated mortgage is different.
Repayment system
The repayment system is the way the money will be returned to the bank. The way the interest is paid varies depending on the repayment system chosen. The most common system in Spain is the French, or constant-instalment, repayment system. This system is based on the initial instalments being used almost entirely to pay off the interest on the mortgage, before repaying the principal.
Fees and commissions
It is important to compare each bank's standard fees when applying for a mortgage, as these can make the mortgage more expensive. Examples include:
- Arrangement fee.
- Early repayment fees, whether total or partial.
- Subrogation fees.
- Interest rate risk fee.
Additional products
Our comparisons must also consider whether agreeing the mortgage involves contracting combined products.
The most common additional products include arranging life and home insurance with the bank's insurance company, contributions to financial products such as pension plans or investment funds, and minimum monthly spending on credit cards. It is also common to have to pay your salary directly into an account with the bank, or pay a number of bills through the bank.