MoneySaverSpain: Saving on your mortgage payments in Spain
With fluctuations in the Spanish housing market and mortgage rates, is it possible to save on your mortgage payments? MoneySaverSpain examines the options.
Whether you already have a mortgage with a Spanish financial institution and are looking for ways to pay less, have associated 'mandatory' products and want to see if you can ditch them, or have recently paid off your loan and are wondering why the charges were so high, then read on to find out what options exist to save on your Spanish mortgage.
Many mortgages contracted in the past few years contain what consumer organisations have termed abusive floor clauses, in other words a fixed minimum interest rate. Given the large fall in the Euribor, people have been left paying considerably more than other mortgage holders who don't have this floor clause. Banks have defended themselves by saying that many contracts also included a 'ceiling' clause – a maximum applicable interest rate – and that people knew what they were signing when they took out their mortgage.
Consumer organisations are involved in petitioning the Government for action on these floor clauses, however the Bank of Spain has decided to sit on the fence by saying that it not the appropriate body to determine whether the floor clause is abusive or not.
Solution: Difficult! Calculate how much you're theoretically overpaying and talk to your bank. Given that mortgage variable rates have changed substantially (from a typical Euribor +0.3 percent a few years ago to a Euribor + minimum 1.80 percent and higher in 2013) it's probably not worth changing mortgage provider given the charges involved.
Overpayment and early payment
If you have spare cash, and given the poor savings rates available at the moment (and that interest earned is eaten up by inflation anyway), it might be a good idea to overpay your mortgage once a year or on a regular monthly basis. However, you'll have to check your mortgage contract first as some banks charge a percentage commission for additional payments, so you'd have to factor this in.
If you want to pay your mortgage in full before the due date this may be penalised too; you may be able to get round this if you have no penalty clause for overpaying – simply overpay most of the outstanding mortgage leaving just a little which would be subject to the early repayment penalty (remember to check with your bank first just in case!).
(Use a mortgage overpayment calculator to see how much you could save).
Additional products contracted with your mortgage?
Most mortgages come with additional 'mandatory' products such as home and life insurance and some mortgages taken out in the last couple of years can have up to five or six different associated products. In order to get a mortgage people sign up for all these financial products, many of which may either be unnecessary or more expensive than equivalents on the market.
If you're thinking of cancelling any, check your mortgage contract first. Normally it will state that for each product you consequently cancel, your mortgage rate will be increased by a percentage rate (eg 0.1 percent per product not contracted). As each case is different, it's a matter of seeing how much you pay for the financial products with your current mortgage provider, see what you would pay with a different company and calculate by how much your mortgage would increase over the number of years left to pay. If the difference is in your favour, then go ahead and cancel them.
Paying off (or cancelling) your mortgage
When you've finished paying your mortgage your bank should issue you with a Certificado de Deuda Cero (Zero Debt Certificate). This ought to be free, but many banks charge up to EUR 200 or more! Your bank may also request an amount of money to cover all the necessary paperwork and fees – don't take up their offer as it will work out a lot cheaper if you do it yourself. Notaries' and registrars' tariffs are subject to regulation, so you won't have to overpay for services.
With this Zero Debt Certificate and your original mortgage contract, you should get in touch with a notary (of your choice) who will draw up the cancellation documentation. The notary will get in touch with the bank representative for signature of the cancellation document (the bank shouldn't charge for this). Cost: minimum EUR 90.
When you have these papers, go to your local Tax Office and fill in the form 600 Actos Juridicos Documentados (Document Duties). Cost: EUR 1 for the form. Even though you don't have to pay any tax, you will need this form for the next step.
Then visit the Registro de la Propiedad (Property Registry) with all your paperwork. Cost: minimum EUR 24, but the final amount will depend on the value of the mortgage. Optional: Request the Nota Simple (Extract) – it's not strictly necessary but with this document you can prove that there is no mortgage on the property. Cost: EUR 9.02€ (can be done online).
Of course, you might find it easier to pay someone (typically a 'gestor' or your bank) to do all this for you, but make sure you get a price in writing first to avoid surprises.
Don't forget to cancel any financial products that came with your mortgage that you no longer need, or change them to a cheaper provider. Additionally if you paid a lump sum for life insurance (that would have been used to pay your mortgage) and cancel your mortgage early, the Bank of Spain has ordered that banks must repay the proportional part outstanding.
Photo credit: Nikcname (home mortgages).
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