Learn the steps you must follow to apply for a mortgage loan.
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Hiring a mortgage loan is a long process that requires effort and dedication. Taking time to collect information and carefully study the options and possibilities is essential to get the best financing. Therefore, this guide aims to clarify each step, so that you have a little easier to enjoy your new home as soon as possible.
Collect information and compare
If we have already decided to buy a home and we need a mortgage loan, the first thing we must do is to collect all the available information in advance so as not to take any false steps. It is important to know the situation of the mortgage market, so we must search, compare and study the offers of the more banks better.
As buyers we must think about which mortgage loan best suits our needs: if we will be able to face the periodic payments, the repayment term, see what our savings are and add margins for unforeseen expenses. That said, it is advisable to know our debt share and that this does not exceed 30-35% of the holder’s net income.
In this first step towards hiring our mortgage loan, the key is to compare. When consulting different offers of mortgage loans from different entities or from the same entity, we will be able to establish differences and better understand what they offer us.
During this information gathering process it is advisable to write down all the possible doubts and then pose them to the professionals. In the conditions and requirements of a mortgage loan we find terms that can be difficult to understand and that can even confuse us. Let’s see some of the most important ones.
Types of mortgage loans
A fixed type. For fixed-rate mortgage loans, the monthly payment to be paid and the interest rate applied will not vary during the life of the loan. Each month the same fee is paid, even if market interest rates go up or down.
A variable type. In the case of variable rate mortgage loans, the most common is that the interest rate is linked to a reference index (the most common is the Euribor). In this way, the monthly fee will vary according to the Euribor.
A mixed type. These mortgages apply a fixed rate during the first years of the loan and then proceed to apply a variable interest with reference to the Euribor.
In what you have to set to hire your mortgage loan
After this process of gathering information we can begin to deepen the cost of our mortgage loan. Here come into play three important terms: TIN, TAE and Euribor.
The TIN is the acronym for Nominal Interest Rate, it is the price charged by the entities for lending money. This interest is calculated by applying a percentage or type on the capital loaned to the client. This percentage is applied to the outstanding capital at any time. Does not include expenses and commissions.
The APR is the acronym of the Annual Equivalent Rate, the interest rate that indicates the effective cost of a loan during a given period. It is calculated according to a mathematical formula that takes into account the nominal interest rate of the operation, the frequency of payments (monthly, quarterly, etc.), bank commissions and some expenses generated by the operation. It allows comparing between different offers the effective cost of the same product.
The Euribor is an index that indicates the average interest rate at which the main European financial institutions lend money to each other in the short term, so it fluctuates constantly. This constant oscillation of the Euribor is what defines the variation of the quota, which is usually reviewed every six months or annually.
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The associated commissions
Another very important aspect in this process of selection of the mortgage loan is that of the associated commissions. In addition to facing a monthly payment during a period that generally goes from 20 to 30 years, depending on the bank in which we contract the mortgage loan we will have to pay some commissions or others. Let’s see some of the most common:
Opening commission. It is calculated on the total of the mortgage loan. This commission is paid at the beginning of the mortgage loan as compensation to the bank for the procedures and formalities of loan formalization.
Account commission associated with the mortgage. Some banking entities require that we open an account that will be used to manage the payment of fees. This commission is not charged by all banks and if we are already customers of the bank that is going to grant us the mortgage loan, this commission does not usually exist.
Commission for partial or total amortization: occurs when the client prepays all or part of the capital pending amortization. It is the compensation to the bank for the administrative procedures that the entity has to perform, as well as for what it ceases to receive in the interest of the capital that remains to be returned.
Most common requirements to access a mortgage
The main requirements that are asked at the time of granting a mortgage loan have to do with the economic solvency of the client, although they are not the only ones.
– Have fixed income. Economic stability is key to any grant of a mortgage. Our bank will ask for payroll and our working life in order to better understand our income flow.
– Initially provide at least 20% of the appraisal price for the home. It is what is known as “entry” and is a requirement that banks ask their customers. Therefore, it is very interesting to know the approximate value of the asset, since it is usually a “cut data”. In accordance with Royal Decree 716/2009, on regulation of the mortgage market, a maximum limit of financing allowed for loans and credits is established, which normally entails that a financial institution does not grant mortgage loans above 80% of the appraisal value.