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Mortgage fixed interest. The installments of this mortgage are stable and are not subject to increases and decreases. The same is always paid so that the control of spending is much easier to manage. An interest rate is set and it is not changed although (the variable interest rates are lower).
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The terms of maturity or amortization are much lower than other types of mortgages. That is, there is less time to pay the mortgage. The expenses of partial or total amortization are also very high.
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In this type of mortgages, the interest varies throughout the term of the loan. On what does the variation of interest depend? The interest rate on variable mortgages is fixed by two indicators:
- Reference index. In general, the different banks, its value is determined from the supply and demand together with the intervention of certain American banks. It is a value that is published daily and varies according to certain economic conditions, both up and down.
- Differential. It is a fixed percentage of the interest charged by the bank for lending the money. One of the great advantages is to enjoy periods where the quota will be lower by the value of the interest rate, after review. But there is a risk that the quota will increase in the case of increases.
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It is essential to ensure the type of reference index that is included in the variable interest rate. It is usually the Euribor, but it is also common to use IRPH Entities (Mortgage Loan Reference Index) and the IRS (5-year interest swap). They are legal but their values are very high compared to Euribor.
Mortgage of mixed interest. This type of mortgages is a product that combines the characteristics of the other two options above. They usually apply a fixed interest in the first years between 5 to 20 years and the rest at a variable interest referenced by the Euribor. There is a possibility (within the range) of choosing the term for fixed interest.
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If the market sets minimum interest rates within the fixed interest period, you will lose (as in fixed interest mortgages). On the other hand, in mortgages of mixed interest, certain commitment capacity is confirmed through different links (insurance and other banking products).
Review the existence of the zero clauses It is a clause that indicates that if the value of the interest rate approaches negative values, the loan interest becomes 0%, the client will only pay capital. It is not an option to favor the client, but a measure so that the bank does not have to return its customers for contributing negatively.
Summary. At this point, what is better? The answer will be marked by the current economic context and future forecasts.
As long as the trend of interest rates is down, the variable interest mortgage is an optimal and more profitable solution. The stability in the payments and the volatility of the market will mark the decision to select a fixed-rate mortgage.
Although, today, they have to raise interest rates steadily and continuously over the years so that the fixed-rate mortgage is more or equal to profitable than the variable.
On the other hand, a low-interest economic system is very satisfactory for the consumers, but for the banks, it reduces the benefit. Thus, under this context, we can define other conditions that can add more expenses to the mortgage: the linkages
Beware of the links associated with mortgages! As a claim to add more customers to your portfolio, many banks associate their mortgages with certain linkages to different products: payroll and receipts direct debit, insurance, bank cards, and other products.
They are interesting if they come from the hand of bonuses in the mortgage, for that reason, it is necessary to study that each one carries. It is also worth noting that it is not obligatory to contract insurance for the granting of mortgages.
What about the floor clauses? The ground clauses establish a minimum payment of the mortgage installments, although the interest rates agreed and those of the variable rate are lower. After the judgment of the Court of Justice of the EU (ruling of December 21, 2016) on the ground clauses that oblige banks to return the money overcharged, as long as they are abusive, attention is a priority this respect.
The soil clauses are not illegal, they are those of an abusive nature. A floor clause is abusive if it is not properly explained to the client by showing the information transparently. If the bank acts with transparency and after the signature, we find ground clauses, no benefits will be obtained when claiming.
Selecting a mortgage is a process that requires knowledge and caution on the part of consumers. Many conditions make a mortgage better than another, the review of all its characteristics and the understanding of all the expenses involved in the mortgage are fundamental pillars to select correctly the type of mortgage.
Finally, we must not forget a deep reflection on the personal and economic forecast of the consumers themselves, because they are talking about an expenditure that can last up to 40 years.