When to check the mortgage

32% of Spaniards pay a mortgage. And with today’s low interest rates, many wonder if it’s time to change it or if it’s worthwhile to anticipate payments

After a long time of not lending money, the banks return to make publicity about mortgages and the statistics of the INE indicate that the average interest of the mortgage loans on houses falls and is 12% inferior to the one of a year ago. These circumstances lead some people to think again about their mortgage and to question if it will not be a good time to review it, if it would be worth looking at what offers are there to change it to another bank, or even if they should dedicate the money they have saved to reduce it now that interest rates are so low.

Change
The financial advisers are very clear: the current mortgages are more expensive than those before the crisis, so it is difficult for a person who has a mortgage contracted before 2007 and linked to the Euribor is interested in changing it. “Before the crisis, mortgages were offered with an interest rate of Euribor plus a 0.5 and now the differential is 1.65 or 1.75, so you will not be able to save interest by changing mortgages and you will also incur expenses for the change” , explains the head of economic issues of the consumer association Ceaccu, Fernando López .

Jordi Paniello , president of the Association of Investment Advisers, Financing and Judicial Experts ( AIF ) explains that the mortgage exchange may be able to compensate in recent mortgages, with higher spreads than the current ones “because in the installments of the first years they are paid many interests and little capital and the savings achieved with a lower interest can offset the costs of change, but you have to get the numbers right “. In this regard, he emphasizes that the costs of changing mortgage conditions are different if a new one is canceled and contracted if a subrogation is agreed, an operation in which the loan is maintained but the creditor entity is modified and with which Registration and notary fees are reduced. The president of EFPA Europe, the European association for financial and property planning and counseling, Josep Soler, ensures that when you receive an attractive offer from an entity to change your mortgage you must ensure “that in addition to giving you better terms it covers the costs of the change”. In any case, improving mortgage conditions does not always require a change of entity. You can negotiate a change in the interest rate, the pending amount or the term with the entity with whom you have contracted the loan and if an agreement is reached, make a novation, although this transaction is also usually accompanied by processing fees. and commissions, which are higher if capital is modified (1% on outstanding capital) than if only the term is changed (0.1%)

Amortize
There are also those who at this time of the year wonder if it is worthwhile to allocate the money they have managed to save to lower their mortgage in order to pay less interest. The experts are not unanimous in their answers. Paniello, for example, thinks yes, that it is better to get rid of the debt as soon as possible because in the future the interest rates will be higher than the current ones, so he advises a partial amortization aimed at reducing the term of the mortgage. On the other hand, Soler and López believe that with interest rates as low as the current ones it is not time to write off. “If your mortgage is old and the conditions are good you will be paying a one and a few percent interests; if you invest the money that you would spend to amortize in another financial product that offers that return, you already have interest paid, and if you count that you also take advantage of the tax deduction for home purchase, the final yield is higher, “they explain.

The specialists of the Organization of Consumers and Users ( OCU ) consider that the convenience of an early amortization depends to a large extent on whether or not the person can be deducted in his income statement and the conditions of each loan. “If the consumer is deducted for home purchase, the best option is to pay as much up to the limit set (9,040 euros per taxpayer per year) and invest the excess in an investment product; and if the conditions of the loan are not good, before amortizing in advance it is worth trying to renegotiate it or change bank, “they indicate. In this regard, they warn that there are entities that subject the partial amortizations to which a high amount is canceled, in which case the amount that one may wish will not be amortized each year “and the negotiation must be directed to request that they allow amortizations of any amount and that they reduce or eliminate the commission for amortization “. On the other hand, the OCU advises in advance to advise the bank that an early repayment will be made to avoid the risk of being attributed to the following year and the tax deduction cannot be used well. And for those who pay an insurance that covers the return of the loan if the owner dies, remember that the company must be notified of the early repayments that are made because as the insured capital will be lower, the premium will be cheaper.

In any case, the decision to amortize or not mortgage is subject to the personal circumstances of each one. “If you have a temporary contract and now you have money, it is very likely that you will be interested in getting rid of the debt as soon as possible; on the other hand if you foresee that in two or three years you will need money to face expenses or investments, it is better not to amortize the mortgage because the loan that you will get later will be much more expensive “, explain Paniello and Soler.

Contract
And for those who think about hiring a mortgage, the unanimous recommendation is to read the fine print of the contract to have clear the commissions and clauses that will apply. The floor clause, which limits what the fee can lower if interest rates fall, is no longer allowed. But you should also look at the formalization expenses (appraisal, agency, notary, registry), in the opening commission, if there is a study fee (usually a percentage of the loan amount) if they will charge for early cancellation or partial amortization if they demand to contract other financial products … The consumer organizations remember that the only insurance that the mortgage holder is obliged to contract is fire, the rest (home insurance, life insurance, etc.) are optional. They also note that to compare the cost of mortgages offered by different banks must be fixed in the APR (annual rate equivalent) and not in nominal interest, and emphasize that accounts intended solely to pay the mortgage installments can not have commissions.