If you plan to buy a new property (whether it’s a first or second home, or even an investment to rent out), one of the key steps in the process is choosing a mortgage that reflects your particular needs and circumstances. In Spain, there are several different types of mortgages and mortgage products and we're here to help you choose.
How to choose a mortgage
It’s very important to investigate the available products carefully before choosing a mortgage for your next property. Remember that you’ll be tied to it for many years, so it’s worth taking time to choose the best product and ensure that there aren’t any shocks in store.
Looking for a mortgage is an intense process that’ll require almost as much energy as looking for a property. But there’s one key difference – the search for the ideal home has an emotional component, no matter how much we make our decision on the basis of practical considerations (and these should be very present in our choice).
When choosing a mortgage, you should leave your emotions out of the equation entirely. It’s important that your selection is completely rational, carefully considered and based on data, analysis and calculations. There’s no other way to make sure you emerge victorious from the process.
To make sure that you have something to celebrate after signing your mortgage agreement, we recommend you follow our 7 tips for choosing a mortgage.
Types of mortgages in Spain
Before making your decision, it’s helpful to familiarise yourself with the type of products on the market. Although every bank is free to offer different products and services, mortgages are subject to certain official laws and specifications.
In Spain, mortgages are classified according to the type of interest on them. There are three options:
- Fixed-rate mortgages:
In this type of mortgage, the interest rate is fixed. The rate is agreed with the bank when the mortgage begins and will remain the same throughout the duration of the loan.
Pros: you always know what you have to pay and there won’t be any nasty surprises.
Cons: you won’t benefit from decreases in the Euribor rate that could reduce your repayments.
You’ll pay more for a fixed-rate mortgage because they tend to be more expensive, but you’ll have greater security. The interest rates are higher and the repayment term is shorter (if you want to cancel the mortgage early, it’ll be more expensive).
- Variable rate mortgages:
In a variable rate mortgage, your monthly repayments can vary depending on the interest rate at the time of review, which is linked to the Euribor rate.
Pros: if the Euribor rate decreases, you’ll pay less for your mortgage.
Cons: if the Euribor rate increases, your mortgage repayments will go up too.
Variable mortgages have longer repayment terms and are more flexible (you can take them out for up to 40 years), with lower fees.
*Most mortgages taken out in Spain are variable, if this helps you decide.
- Mixed-rate mortgages:
Finally, another option are mixed-rate mortgages. They combine the previous two options and offer stable monthly repayments as in a fixed-rate mortgage and variable interest based on the reference rate.
Now you know more about what to expect at your next meeting with your bank manager or estate agent and you’ll be better equipped to choose the right mortgage for you. You’ll be sure to be speaking the same language.