How Do You Choose a Mortgage in Spain?

How do I get a mortgage in Spain? And what do I choose ? Fixed, Variable, Mixed and from which bank? 

If you’re buying a property in Spain, you may be considering taking out a loan to finance part of the purchase. Getting a Spanish mortgage is definitely possible for non-resident investors. There are no laws or rules preventing foreign citizens from buying property in Spain. So for most people there are good reasons for financing at least a part of a property. And even people who have funds to buy outright might benefit from using a mortgage. 

One of the best tips is to start looking into your mortgage options even before you start searching for property for sale in Spain. The key to getting a mortgage in Spain is understanding how the Spanish mortgage market works, how much you can borrow to buy a property in Spain. 

For your mortgage application, you’ll need to show some documentation. It is easier if you can show them already if you go to a bank. Whether you go through a Spanish or an international mortgage lender, you will need – at a minimum – the following documents:

• NIE number 
• Proof of employment
• A pre-agreement with the seller
• Proof that the property tax is paid to date
• Details of your current debts and mortgages
• Copies of all your existing property deeds (in S
• pain and elsewhere)
• Records of your current assets
• Any prenuptial agreements (if applicable)

If you prepare yourself you have more time to shop around. There’s intense competition among mortgage lenders in Spain so it makes sense to compare and contrast terms and conditions. Banks will make you a mortgage offer. This may not be the bank’s best offer, so don’t be afraid to take it to a competitor. Often the competitor will try to provide you a better offer – which you can take to the original bank to see if they are willing to improve their original offer.
Forward planning helps you also clarify the advantages and disadvantages of taking out a mortgage and make the best decisions. One of the advantages is that you have a bigger budget and allows you to buy a bigger and/or better house. In areas with foreign buyers, an extra budget often makes the difference between an average property and an exceptional one. Buying a property with a mortgage means you use less of your own money for the purchase and gives you extra leverage when you sell later on. However, getting a mortgage in Spain also comes with several drawbacks. One of them is that you have higher costs in taxes and fees. It is also a higher risk, because there’s no guarantee on your financial future or interest rates go up and down. 

SHOULD I USE A MORTGAGE BROKER ?

Using the services of a mortgage broker may save you valuable time and money since they do the shopping around and compare for you. Make sure you choose a reputable broker with a proven track record that’s registered with the Spanish authorities. Mortgage brokers have regular contact with a wide variety of lenders, some of whom you may not even know about. A broker can steer you away from certain lenders with onerous payment terms. Some lenders work exclusively with mortgage brokers and rely on them to be the gatekeepers to bring them suitable clients. You may not be able to call some lenders directly to get a retail mortgage. Brokers may also be able to get special rates from lenders due to the volume of business generated that might be lower than you can get on your own. Several different types of fees can be involved in taking on a new mortgage or working with a new lender, including origination fees, application fees, and appraisal fees. In some cases, mortgage brokers may be able to get lenders to waive some or all of these fees, which can save you hundreds of thousands of dollars. Besides all the advantages, mortgage brokers also have disadvantages. A broker often gets a fee from the lender for bringing in the business. This fee can be based on the amount of the mortgage and will vary among lenders. So a broker’s interest may not align with your own. Sometimes lenders give you the same as they should give you personally, so a broker may not source the best deal for you. They are paid by the lender or by you. If the fee is covered by the lender, you may be concerned whether you might be steered to a more expensive loan because the commission to the broker is more lucrative. If you pay the fee, figure it into the mortgage costs before dividing how good a deal you are getting. 

BUT HOW DO YOU APPLY TO IT?

Most of the larger Spanish banks offer mortgages to non-residents. No matter which lender or broker you talk to, they will all want to see the same sort of information regarding the property you want to buy, and your financial circumstances. They need this information to pre-qualify your interest, which means decide if it is worth your while to make a full application. So a sensible first step is to gather all the information you need for pre-qualification, which makes the next step of approaching brokers and lenders more straightforward. Before you apply, please note that maximum loan-to-value for non-residents in Spain is a maximum of around 70%, less in many cases. You also need to cover buying costs, which could be as high as 12% to 15%, so allow for that in your budget. That means you will need your own funds to finance at least 40% to 45% of the total cost of buying a Spanish property. So you are probably wasting your time applying for a mortgage if you don’t have at least 40% of the money you will need to cover the whole cost of the purchase. If you want to re-mortgage, it is unlikely you will end up any better-off, so it’s probably not worth the effort approaching new lenders. In most cases, trying to renegotiate your mortgage terms with your existing lender is the best option.

One of the biggest advantages since the new mortgage law came into force has been transparency. Thanks to the law, any client who applies for a mortgage will be protected against abusive clauses and, above all, against misinformation. This is called a FEIN of a mortgage. The FEIN of a mortgage is a document that the bank submits before signing a mortgage loan. Its acronym stands for European Standard Information Sheet. The FEIN mortgage contains all the information regarding the loan. It serves so that the client knows exactly what the conditions of the mortgage are before signing anything. Besides the FEIN you also have FIAE. This is also known as the standardised warning sheet, and is the first cousin of the FEIN. An ideal complement that informs the client of the most dangerous aspects of the mortgage contract. The FEIN of the mortgage is binding only for one of the two parties to the contract. The consumer has up to 10 days to think about whether or not he wants to sign the mortgage without fear of losing the agreed conditions.

VARIABLE OR FIXED?

Deciding what type of mortgage suits your circumstances best requires careful consideration, taking into account your short, medium and long-term plans. The main types of mortgages available in Spain are as follows:

Variable interest, this is by far the most popular type of Spanish mortgage, particularly since the Euribor has been in negative territory. The benefits of variable interest rates include the opportunity to take advantage of ‘cheap’ money and more choice of mortgages. On the other hand, with a variable interest mortgage you do not know how much your monthly repayments are going to be and interest rates may go up.

Fixed interest is used to be less popular among Spanish buyers, although in recent months there has been more take-up on this type of mortgage. Its main drawbacks are higher costs- you pay more to borrow the money when interest rates are low – but on the other hand, you know exactly how much your monthly repayments are for the entire duration of the mortgage. You are also protected from future interest rate hikes because yours is fixed. In the economic uncertainty during 2020, many Spanish preferred this security.

Mortgages allowing the borrower to pay interest only during the first term of the mortgage (usually two years) are not common in Spain, particularly since the property crisis. They are also only available to residents. Their main advantage is lower monthly repayments, but they work out more expensive because of the extra time taken to pay off the capital.

You may want to consider taking out a mortgage in a currency other than the euro. Some Spanish banks provide non-euro loans, although it isn’t common practice. The main benefit of having a mortgage in your currency means that you reduce the cost of currency exchange on repayments. On the other hand, non-euro mortgages are more difficult to obtain and Spanish banks tend to charge more for this type of loan. If you’re planning to buy a property in Spain to let, either as a holiday home or long-term rental, it makes sense to take out a mortgage in euros. Financial experts advise that the best way to minimise currency risks is to have the asset and loan in the same currency.

WHICH BANK OFFERS WHICH MORTGAGES?

After all this information about mortgages, which bank is now offering these mortgages? The first bank that is very popular is Santander. You can apply for a mortgage online and get personal attention until the end. On the website you can also calculate the installment of your fixed or variable mortgage for your house or flat. It simulates what the monthly fee and associated expenses would be. It compares and chooses the type of mortgage that best suits you and does the accounting to buy your house in less than 1 minute.

Caixabank is also a Spanish bank that offers mortgages. You can apply via an application or via the website. It gives you a fully secure document dispatch process and they will answer you within 72 hours after you dispatch your documents. Another advantage of this bank is that you can send all your documents, without translating them. They also offer a guide which includes detailed information on the steps for a non-resident who wants to buy a home in Spain, information on areas of Spain and climate, documents you will need for a mortgage application, glossary of mortgage terms to know the meaning of complex words…

Banco Sabadell has more than 14,000 clients who have trusted them to make their new home a reality over the last year. That is why we also recommend this bank. Their team of experts will be by your side from the start to finish to make everything easier with a personalised price and a service suited to your needs. They offer fixed-rate mortgages and variable-rate mortgages. On their website you can find big differences between their mortgages so you can compare them in an easy way.

This Spanish bank that we recommend is BBVA. Like the other banks they also offer an adviser to accompany you at all times, and have personalized prices and assessment. Besides offering variable-rate mortgages and fixed mortgages they also offer efficient home mortgages. It is a mortgage for homes with a certified type A or B energy rating. If you need more information about their offer you can also request for a personalized study.

INGdirect offers besides variable mortgages and fixed mortgages also mixed mortgages. The rate of your mortgage is maintained for 10 years. During that period the interest rate will be the same and, therefore, your instalment will always remain the same. Afterwards, your fee will be updated every 6 months and will do so depending on the Euribor. Just like the other banks they offer online products and a personal manager throughout the process.

The last Spanish bank is Liberbank. They offer mortgages without endless waiting, without stepping into an office, without commitments and without worries, with a specialised manager who will be by your side until you achieve your dream. All the steps you have to do with them are fully online, except going to the notary for the signature.

If you have more questions please email us at mortgage@casamona.com