A mortgage loan is a financial product whose purpose is the granting of a certain amount of money, which will be used to purchase or restore a real estate asset.
It is considered one of the most requested loan operations for companies and individuals.
What is a mortgage loan?
The particularity of mortgage loans is that the credit institutions that grant them, in addition to the personal guarantees required in any loan operation, also require real guarantees about payment compliance on the operation.
In this case, the guarantee is the property itself that is mortgaged, that if the default occurs, the ownership will automatically pass to the financial entity.
Mortgage loans have a series of peculiarities that differentiate them from any other credit operation. Some of them are:
All mortgage loans will be associated with a current or current account in the name of the borrowers, in which the different installments to be paid will be collected.
Characteristics and requirements of the mortgage loan
Having a real guarantee, it is one of the safest loan operations for the credit institution that grants it.
Due to the high amounts granted, the repayment terms are longer, and the lower interest rate to be paid in relation to other types of loans.
The maximum amount granted by the financial institution is usually around 80% of the appraisal value of the real estate.
The fee to be paid will be around 35% of the monthly net income of the people who request it.
Prior to its concession, the entity will carry out a feasibility study on the borrowers’ payment capacity in which abundant documentation will be required (DNI, income statement, appraisal study of the asset, Simple property note, last payroll or VAT declaration, an employment contract … etc).
Within the mortgage loans and depending on the interest rate that is applied, they are qualified in:
A mortgage loan with a fixed interest
It is that, in which the interest rate that is applied, will remain fixed throughout the life of the loan. This means that the monthly installments to be paid will always be the same, in this way, there will be no need to worry about rising or falling rates. They are usually shorter-term mortgage loans since they do not exceed 20 years.
A mortgage loan with variable interest
It is that, in which the interest rate that is applied is generally reviewed annually (although it may be semiannual or quarterly), and conforms to the conditions that the reference index (Euribor, mibor …) has in the market at that time. In this case, the life of the loan is usually longer and can last between 30-35 years.
Mortgage loans with mixed interest
As the name implies, it is a combination of the two previous modalities. In general, the loan begins by paying a fixed interest rate that usually lasts between three and five years and then becomes a variable.
In any of the options chosen, we must not forget that all mortgage loans are associated with expenses that add to the purchase price of the property: notary expenses, registration, appraisals, opening fees, damage insurance … etc.
Therefore, before requesting such an operation, we must be aware that, due to the large volumes borrowed and the long duration of the loan, mortgage loans are usually the most relevant financial operations for any family, company or individual.