There is a possibility that either we do not have all the money to buy the property, or that we do not wish to use our money for this, for whatever reason. In either case, we will need some help in the form of financing, whether from a bank or a private source, in the shape of a contractual and legal item known as a mortgage. The mortgage is not the financing in itself, but rather it is the guarantee that we give to the lender that we are going to pay, because if we do not do this, the money can be claimed by the latter through a sale at auction, or the lender will retain ownership of the real estate it has helped us to buy.
In its base form, a loan with a mortgage guarantee or a mortgage as we commonly call it, is no more than a consumer product. There are a wide variety of these available on the market, some at a fixed rate, others at a variable rate, others mixed, others with fixed repayments, but containing repayment periods that are overly long, etc. Before doing anything, we should inform ourselves of the greatest possible variety of these, asking at different financial entities, and then seeing which one is the best suited to our needs.
In this respect, we also have the assistance of the professional, the R.E.P.A., who can inform us on what the best products on the market are and which ones are more or less suited to our needs profile. However, there exist many variations. In its base form it continues to be a contract, and as such the financing entity or lender provides us with a sum of money that we commit ourselves to repaying in the agreed time period. Certain interest is also added to this sum. The essential elements of this contract are:
Principal: This is the amount lent by the lender to the borrower.
Interest rate: This is an annual percentage on the outstanding principal sum that the lender is going to charge the borrower for having lent him the money. These rates may be fixed for the whole of the life of the loan, or they may be variable, that is to say they can be revised upwards or downwards on a half-yearly or annual basis etc.
Loan period: This is the period of time in which the borrower undertakes to repay the principal, plus the interest, to the borrower. This term is divided into periods which may be months, quarters, half-years, annual periods, etc. in which the payment has to be made.
Amortisation: Or how the principal and the interest is repaid. The Spanish banking system makes use of the French system, which means that payment is made at the start of the loan period in terms of instalment plus interest rather than principal. The situation is reversed at the end of the loan period.
Instalment: This is the sum of money to be paid in each period into which the loan period is divided.
Shortfall: Normally, this is applied in a qualifying form to one or some periods of time of the amortisation term in which either the principal is not paid, and so only interest would be paid, or the other way around, where interest is not paid and only the capital is repaid. The purpose of this is to make the payment of the first loan instalments easier, since by delaying the payment of the principal or of the interest, the instalment to be paid is less in these periods.
The need for mortgage financing carries with it an increase in the administration involved in the sale, and also in the costs, which we shall speak about later on. This is because the lender will request information from us of a personal and financial nature, in order to analyse how much debt we can take on and how much we can pay. It also appraises the property in order to find out its value. It will further be necessary to sign the loan contracts, those for the insurance on the dwelling, one further public deed, the deed of loan, etc.
fuente: COAPI Madrid