FAQ 1 :  What is the best type of mortgage?

Answer: As It is important to be able to compare the value for money of all the different mortgage products.

There are many ways in which interest can be calculated and repayments made. For example, interest can be charged by reference to days, months, quarters or years and repayments can be made at varying intervals, making it difficult for comparisons to be made between the terms offered on various loans.

To overcome this problem the TAE (Tasa Anual de Equivalencia), or APR (Annual Percentage Rate) in English, is the interest rate which represents the total charge for credit and takes into account the added costs of the loan.

The added costs are for example - valuation fees, opening commissions and lenders' conveyancing charges which are not included in the nominal rate.

Although the TAE is based on the gross rate of interest, they offer a means of comparing the cost of different loans.

Caution, however, should be exercised in relying on the TAE as a means of comparing different mortgages, particularly if you are trying to compare a fixed or discounted rate with a standard rate.

FAQ 2 :  How should I repay it?

Answer: Most of the Spanish lenders require repayments to be on a monthly basis.

There is nothing to stop a bank from altering the repayment schedule to suit the borrower (eg pay is based on quarterly commissions).

Other banks allow the borrower to stall repayments of the capital until a future date, the repayment consisting in interest only.

This flexibility varies from one lender to another.

FAQ 3 :  Can I make lump sum payments to reduce the size of the loan?

Answer: This is a possibility and is available in all banks.

In fact, lenders are not allowed to preclude the borrower from doing so, since this attitude would invariably be construed as being against the basic rights of the consumer under the powerful consumers' legislation.

Most of the lenders will nonetheless charge a redemption penalty for lump sum payments ranging from 1% to 1.5 %, going up to 4% of the capital borrowed on a fixed interest rate loan offered by some entities.

FAQ 4 :  Are there any redemption penalties?

Answer: Redemption penalties (known in Spain as early repayment commissions) are applied by almost all banks. These vary between those applied to variable interest rate loans and fixed ones.

A decision of early repayment can result in being whacked with a whopping 4% redemption fee in fixed interest rate loans with some lenders.

FAQ 5 :  Do mortgages come with compulsory insurance?

Answer: Any entity will charge a premium to insure the property against adverse occurrences.

This is understandable inasmuch as the mortgage is secured by the market value of the property.

However, lending entities have now started to impose on borrowers the obligation of taking out life insurance.

This practice, according to AUSBANK, is abusive and should be contested.

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