Advantages for obtaining a mortgage with the Rent 2 Buy concept.
Renting a property with an option to buy, will felicitate the obtaining of a mortgage as the rent paid during the contractual agreement goes toward the building of a “Credit History”. Lenders will look upon a good rating favourably when deciding to grant a mortgage. Also at the same time you will have accumulated a down payment of around 15% of the value of the property.
It is important to keep in mind the following before you start your search for a suitable mortgage for your property:
A standard calculation is that your monthly repayments should never be more than 35 – 40% of your net monthly income.
Normally Banks will only grant a mortgage for up to 80% of the value of the property.
Lenders will in general grant a mortgage for up to a maximum length of 25 – 30 years and an age of 75 years. For people under 30 the duration can usually be extended to 35 years.
The existence of certain terms & conditions linked to the mortgage. It is standard practise for lenders to obligate mortgage applicants to contract certain financial products, like home insurance for example.
Factors to take into considerations when applying for a mortgage.
A mortgage defines itself within these 3 parameters:
The Capital, this is the amount lent by the bank. The capital lent is usually less than the value of the property.
The Type of Interest, which indicates an extra percentage that you have to pay to the lender over the amount borrowed.
The Duration, this is the period of time that it will take to pay back the mortgage. The paying back of a mortgage is normally realized by instalments (usually monthly) until the entire amount borrowed has been paid, including the interest that has accumulated throughout the duration of the mortgage.
How much can I apply for?
Nowadays certain Banks under specific conditions can offer up to 100% of the value of the property. However, generally banks will lend a percentage maximum of up to 80%. Therefore the applicant must provide a down payment of 20%, whilst not forgetting to add on the costs for taking out the mortgage. These can normally be estimated to be about 10% of the value of the property.
How to decide on the Length of a Mortgage?
The general criteria is to determine the length of the contract to such an extent that you will be left with affordable monthly repayments. This decision comes down to each individual’s personal financial situation. The ultimate goal is to make sure that the repayments are assumable.
1) The longer the duration of the mortgage, the more interest you will pay.
2) The longer the duration of the mortgage, the cheaper the monthly repayments will be.
Furthermore, one has to take into consideration that the length of a mortgage does vary depending on the type of interest that you have chosen. A mortgage with a fixed interest rate has a maximum duration shorter than that of a mortgage with a variable interest rate. Also, not all lenders offer the same length of mortgage. In general the maximum duration for a mortgage is between 25 and 30 years.
Types of interest: Fixed, Variable or Mixed?
The selection of a type of interest in real terms depends on your expectation of the evolution of the price of money over time, which is influenced by numerous factors (political, economical, etc), many of which cannot be foreseen. Therefore the final decision comes down to the economic possibilities of the applicant, his expectations, and the risks he is willing to assume.
There are three basic types of interest:
1. Fixed interest rate: This type of mortgage maintains the same interest rate for the entire duration of the mortgage; which means that the monthly repayments will never change.
2. Variable interest rate:With this type of mortgage the interest fluctuates according to economic conditions. Normally for the first 6 to 12 months the interest is fixed. Once this time has transpired the interest rate is revised continuously every 6 to 12 months.
3. Mixed Interest rate:With a mixed rate mortgage the interest is fixed for a determined period of time. Once this time has transpired, the interest converts to a variable type of interest.
How to calculate the interest for a mortgage?
In Spain, the Euribor (European Inter Bank Offered Rate) is the index that is most used as a base to calculate the interest of a mortgage, and to a lesser extent as well the IRPH. Each lender will add its own margin to these basic indexes, which is why interest rates can vary depending on the provider.
What are the costs for taking out a mortgage?
The valuation of the property (more or less 0.1% of the valuation).
Opening Fee (normally up to 1% of the amount borrowed). With new build properties it is recommendable to speak with the developer to see what type of mortgage they can offer. In many cases the builder’s mortgage has no opening fee.
The cost of the Notary, Land Registry, Stamp Duty, and Insurance (about 2% over the amount borrowed).
Other fees to take into consideration are: partial or early repayment fees, and charges for subrogation. Spanish law limits the commission for early repayment or subrogation of mortgages with a variable interest rate to a maximum of 0.5%.
What documents do you need to provide?
If you are Employed
Last 3 months payslips
Last 3 months bank statements
Bank reference *
Employers reference *
Credit report *
If you are Self Employed
Profit & Loss accounts
Balance sheet to date
Last 3 months personal & business bank statements
Bank reference *
Accountants reference *
Credit report *
* required for borrowings of 80% or more.
Please enter the required fields to start calculating your mortgage...
Spanish equivalent to Stamp Duty. Which is normally around 1% of the purchase price.
Annual Percentage Rate (APR)
Tasa anual equivalente. Takes into account the full amount of interest on any money borrowed plus the timing of repayments and any other charges that you have to pay. The frequency of the interest payments, for example monthly or quarterly, affects the calculation.
Amortización ( Repayment)
Repayment of the initial loan amount by means of a scheme of instalments, including a repayment of capital borrowed and an amount for the interest charged. According to the type of mortgage, these instalments can be fixed for the whole life of the loan or vary with interest rate fluctuation.
Applied or Nominal Interest Rate
The rate used to calculate the interest due.
A fee to cover administration.
Mortgage payments which have not been paid as requested and have become overdue.
Your money, property, goods that have financial value.
A policy that you pay for, and that pays money to your next of kin when you die.
The amount you owe, after taking payments (credits) and any debits into account.
Bank of England base rate
The Bank of England 'repurchase' or 'repo' rate which is main factor influencing interest rates charges by lenders.
Covers the house you are buying against damage - take it out from the day you exchange contracts.
Cancelación anticipada (Early Repayment or Early Redemption)
This means the total or partial repayment of the borrowed amount before maturity. In partial repayments, you can choose to reduce the monthly payment and keep the agreed final maturity date, or keep the same amount of instalment but shorten the term.
Cancelación registral (Register Discharge)
Once the mortgage has been repaid, the encumbrance has to be released from the Land Register. This involves costs of Notary, Register and Solicitor.
Money that you've invested or borrowed (e.g. to buy a home). It doesn't include the income or profit you get from an investment, or the interest you have to pay on a loan or mortgage.
Carga (Encumbrance or Registered Charge)
Legal charges regarding a determined property entered in the Land Register, i.e. mortgages, usufructs etc.
Stands for Charges, Access, and Terms - which have to be low, easy and fair respectively. These standards were introduced by the UK Government for mortgages to help borrowers, especially first-time buyers
Cédula de habitabilidad (Occupancy Certificate)
This document certifies that the home meets minimum occupancy conditions. You will need to produce this document when contracting utilities such as water, electricity and gas.
Closing administration charge
A charge made by the lender to cover administration costs when a mortgage is repaid.
Collateral / lender’s security
The property. The lender can take possession and sell it if the borrower does not keep up the mortgage payments.
Comisión de apertura (Opening Fee or Loan Arrangement Fee)
This is a percentage of the loan discounted from the total amount when it is paid into your account, for services rendered in granting and processing the mortgage.
Comisión de cancelación anticipada (Early Repayment Fee)
This fee, indicated in the mortgage contract as a percentage of the repaid amount, compensates the lender for the loss of interest payments expected for the period between the early redemption and the agreed maturity.
The final legal transfer of ownership of the property - when the property becomes yours. Also the start of the mortgage. This is also known as 'drawdown'.
Cover for the contents of your home - including furniture, appliances and personal items - against damage and theft.
The written agreement between the seller and the buyer of a property to transfer ownership.
Where the seller has received two or more offers on the property and will sell to the buyer who is ready to exchange contracts first.
Solicitor or licensed conveyancer who deals with the legal aspects of buying or selling land or property.
The legal work involved in the sale and purchase of land or property.
Interest is calculated on the balance outstanding each day. So, when you make a payment, interest is calculated on the new balance straightaway.
Defective title policy
Is an insurance policy taken out where a defect in the title to the property has been discovered.
Two deposits may be payable by the buyer:
A reservation charge. The buyer pays this as a sign of commitment when they initially agree to buy the property.
- The deposit. A percentage of the price of the property, paid when contracts are exchanged.
A variable rate that is set at a fixed percentage amount below the lender's standard variable rate for a period of time. At the end of the period, the mortgage goes back to the lender's variable rate
Drawdown is the date when the mortgage starts.
Some mortgage funds are available for a limited period only and usually these mortgages must start by a certain date - the drawdown deadline.
Early repayment charge (ERC)
A charge payable on certain types of loan if it is repaid or partly repaid within a certain period eg during a fixed-rate period or while a discount applies
Sometimes used to describe an interest only mortgage supported by an endowment policy.
A combined life assurance and investment policy often taken out at the start of a mortgage to run for the same term. Premiums are paid by the borrower to a life assurance company, usually monthly. The company invests the premiums and the investment should provide a lump sum at the end of the policy term (which can be used to repay all or part of the mortgage) or earlier if the borrower should die.
The difference between the value of the property and the amount of any loan secured against it.
Equity (in property) - the difference between how much your property is worth the balance of your outstanding mortgage and any other debts secured on the property.
Escritura pública de compraventa (Deed of Sale)
This document legalises the purchase and shall be signed by both contracting parties and by the notary. The purchaser obtains a first copy of the deed once all taxes have been paid and the corresponding inscription in the Property Register has been done.
The title document which specifies the name of the owner and includes a detailed description of the property.
Work required on the property before the mortgage loan can be issued.
European Inter-Bank Offered Rate, an index based on the interest rate for deposits in Euros at 12 months that is published by the European Central Bank and commonly used as reference rate for variable rate mortgages.
Exchange of contracts
In England and Wales (not Scotland), the point when both buyer and seller are legally bound to the transaction and at which point the buyer should take out buildings insurance on the property.
A letter requesting payment and sent to a customer who is in arrears before legal proceedings start.
First mortgage payment
This is higher than the normal monthly payments, because the lender doesn’t collect it until after the loan starts. So, as well as the normal monthly amount, the first payment will include an interest payment for the rest of the month in which the loan began.
An interest rate that stays the same throughout an agreed period.
A mortgage that allows you to make overpayments and underpayments on the mortgage without penalty, and, in some cases, to take payment holidays.
Outright ownership of the property and the land on which it stands.
An additional loan by the lender to the borrower, which may be for any purpose and secured by the existing mortgage deed.
The professional adviser who looks after dealings with the Register and the payment of taxes to the Tax Authority.
The whole amount before any deductions (such as tax or fees) are made.
Higher Lending Charge
Hecho de naturaleza jurídica o económica, cuya realización conlleva el nacimiento de una obligación tributaria.
Hipoteca ( Mortgage)
A legal charge entered in the Property Register when a real estate property is assigned to be collateral for a mortgage loan.
In the UK only - A surveyor's report on a property which is less extensive than a building survey and is paid for by the purchaser.
Indice de referencia (Reference Rate)
This base rate is, on variable rate mortgages, used to calculate the new interest rate when it is reset. Our advice: Pay attention to the fact that the reference rate, together with the margin, determines the amount of the future instalments.
Impuesto actos jurídicos documentados
AJD (Transfer Tax) This tax is payable on sales transactions subject to VAT and mortgage loans, at a rate of 0.5%-1,5% on total coverage of the mortgage or on the deed amount in the case of sales subject to VAT.
Impuesto sobre el valor añadido
IVA (V alueA dded T ax, VAT ) Sales made directly by a developer (newly built homes) are subject to VAT. The current standard rate is 7% on the sales value in case of private use and 16% in case of commercial use. In some autonomous regions like in the case of the Canary Islands the rate might vary.
Impuesto sobre transmisiones patrimoniales
ITP (Capital Transfer Tax) This tax is payable instead of the VAT when the property is not newly built. In this case, the standard rate of 7% is independent of the assigned use of the property, but there are regional differences.
Individual Savings Account (ISA)
The UK Government's tax-free saving scheme. You can make financial provisions for the future by putting money into any of three types of investment - cash savings, stocks and shares and life assurance.
Any payment due for the period from the day the mortgage began up to the first payment date.
A contract with an insurance company that you pay for, and that pays money to you to cover possibilities such as theft, damage to property, loss and so on.
Interés ordinario (Ordinary Interest)
That is the nominal interest rate. It has to be specified in the contract whether the rate is fixed or variable throughout all or part of the loan.
Indice de Referencia de Prestamos Hipotecarios. Similar to the EURIBOR, this rate is used as reference for variable rate mortgages and published by the Banco de España. It represents an average rate for mortgages offered by all Spanish financial entities.
The amount that you pay when you borrow money. It's expressed as a percentage rate over a period of time.
No interest is charged on money that you borrow.
Interest only mortgage
You only repay the interest each month. The original capital balance will remain outstanding at the end of your mortgage term.
A loan on which you only pay the interest element. The amount of capital you owe remains the same throughout the term of the mortgage and is due to be repaid at the end of the term.
The rate at which you pay back interest, expressed as a percentage of the amount you borrow.
Something you put money into that will provide profit in the future (such as savings) or gain in value so that you can sell it at a higher price later (such as a house).
The transfer tax payable when you purchase either land, house, apartment or a building plot from a private owner. Depending upon "Local Parliament" it can be 6% or 7% of the declared value of the property as expressed in the Deed of conveyance.
The Spanish equivalent of VAT. It is paid instead of ITP when you buy from a developer rather than the private individual. It is charged at the rate of 7% on the construction of a house and any associated buildings. It is also charged at the rate of 7% on both the plot and the house if you buy both at the same time.
Land Registry Certificate
Provides details of the property including a plan and, if the property is leasehold, a copy of the lease.
Land Registry fee
A fee paid to the Land Registry to register ownership of a property.
The right to possession, but not ownership, of a property for an agreed period of time. Ultimate ownership remains with the freeholder.
The bank/building society where you have your mortgage.
The person to whom a lease is granted - the tenant.
The person who grants a lease - the landlord.
An insurance policy that pays a lump sum on death. Often taken out with a mortgage to provide money for the loan to be repaid if the borrower dies during the term.
Money that you borrow (e.g. to buy a new car) on condition that you pay it back.
Loan to Value (LTV)
The size of a mortgage as a percentage of the value of the property or its purchase price.
Local authority search
Questions to the local authority regarding plans for new road building, planning permission for any building work previously carried out, connection to the mains sewer, etc.
Has a specific meaning in law but has come to mean a loan with property as security. The company giving you the loan has certain rights, including the right to sell the property if you don't pay back the loan.
The mortgagee is the lender who lends money in return for the mortgage granted by the borrower, who is the mortgagor.
The term over which you agree to repay the loan.
When the value of the property has fallen and is less than the loan secured on it.
The amount after deductions (such as tax or fees) are made.
Net interest rate
The rate payable after the lower rate of income tax is deducted. (Note. As the rate of tax may vary, a net rate is usually only given as an example)
In the UK a 10-year guarantee, provided by the National House Building Council, that the builder will put right serious defects on a newly-built property.
Nominal annual rate
The rate of interest that would apply if the interest were not added each year and if there were no inflation.
Notario ( Notary)
The Notary acts as the public official when signing the public deeds, such as the sales or mortgage loan agreement. He is obliged to ensure that current legislation is fulfilled and to defend the interests of the parties, particularly the borrower’s interests.
This is a basic record of the property details from the Land Registry, it shows the size of the property as well as any outstanding debts attached.
Oferta vinculante (Binding Quotation)
An overview of the financial terms of loans on property offered by financial institutions. The Ministerial Ordinance of May 5th, 1994 regarding transparency of mortgage loans, stipulates the obligation of making a binding quotation for each mortgage loan, which meets the following specifications:
The borrower must be an individual person.
The collateral must be a privately used home.
The amount must not exceed €150,000.
The binding quotation must indicate that if the borrower accepts the quotation, he will have the right to examine it at the notary’s office, for three working days before the signing of the mortgage contract.
- higher or extra mortgage payments that you make (usually to pay off your loan or mortgage early).
Insurance which pays your monthly mortgage payments, usually for a specified period, if you lose your income through sickness, injury or unemployment.
An investment plan which can provide a lump sum and an income after retirement. A pension plan is sometimes used as a way of providing a lump sum to repay the capital of an interest only mortgage.
Periodicidad de las revisiones (Resetting Frequency)
This means the frequency of interest rate resetting on variable rate mortgages, which are usually carried out once or twice a year.
Plazo de amortización (Term or Repayment Period)
The period of time during which the loan capital and the corresponding interest have to be repaid.
Usually payable by the vendor however the buyer sometime pays where negotiated.
Préstamo hipotecario (Mortgage Loan)
Usually known simply as Hipoteca (mortgage), this is a loan granted by a lender and backed by a property
The amount of the loan on which interest is calculated.
Registro de la propiedad (Land Register and Land Registry)
The Land Register contains all acts, contracts or legal charges referring to a property, such as ownership or encumbrances. Registro de la propiedad is also the local department responsible for maintaining the Land Register, i.e. the Land Registry.
Replacing a mortgage with a new one (from your existing or a different lender), without moving home. You use the money you borrow for the new mortgage to repay the old one.
When a mortgage is repaid. (Also called redemption.)
The means by which a mortgage is repaid. The two main repayment methods are 'interest only' and 'repayment'.
A loan where you pay back some of the capital as well as interest each month. The amount you owe is gradually reduced.
Subrogación (Remortgaging with another lender)
If you have already a mortgage, but another lender offers you better terms and conditions for your mortgage, you can remortgage, i.e. transfer the mortgage and all the corresponding rights to this new lender. This transaction is tax-free.
Subrogación de deudor (Remortgage of the debtor)
This is a substitution of the debtor´s mortgage. That is to say, when the person who buys a mortgaged property takes responsibility for all debts and encumbrances that the seller had towards the financial institution that conceeded the mortgage.
Tasa anual equivalente
TAE (Annual Percentage Rate, APR) This represents the effective cost of a loan calculated as if it were paid as one single repayment each year. It has to be indicated on any loan offer to make it easy to compare different loan offers with different characteristics (interest rate, commissions, reference rates, margins, etc.).
Tasación ( Valuation)
An independent surveyor company carries out the valuation of the property in order to determine the current value of the home within the property market and to specify the maximum amount that can be financed. The valuation is valid for six months after the date of issue.
Tasas y cargas
Taxation for services supplied by the Municipality such as rubbish collection and street cleaning. They may also include a charge for using vehicles in the area.
Tie in Term
The period of time you would need to remain on certain mortgage terms to avoid an early repayment charge.
Title deeds/title documents
The legal documents which provide proof of ownership of a property.
A form which provides details of the transfer of ownership to be entered on the Land Registry register.
An inspection of the property to ascertain its acceptability to the lender as security against the mortgage loan, for which the borrower may have to pay.
The interest rate that you pay on your loan or mortgage and that rises and falls roughly in line with a stated index, such as the base rate set by the Bank of England or the Euribor.
The person(s) you are buying your new home from.
Verificación registral (Land Register Check)
That is the examination of the Land Register records of a property, verifying the legal owner and the existence of charges, such as mortgages, encumbrances etc. The document where all this is reflected and that must be presented to the bank is the “Nota simple de cargas”.