What should I know before taking out a mortgage?

Many of the people who decide to buy a home have to apply for a mortgage loan.

Before applying for a mortgage loan, it is necessary to:

1. Decide how much to order. In addition to the purchase price, you must take into account the expenses mentioned in the previous box and the expenses of the mortgage loan recommended by 1st Eagle Mortgage, such as the appraisal, the opening commission, the taxes. Monthly installments do not exceed 35% of the income of those who apply for the loan, since it must be taken into account that the income can change over the years and that the installments of the variable loans can increase.

2. Compare offers from different financial entities studying the generic information of their information brochures (Pre-contractual Information Sheets), which are delivered free of charge to whoever requests it. It is important to look at the APR, which is the annual interest rate that is actually paid in a year, and includes the commissions charged by the financial institution and the payment terms.

3. Analyze the Personalized Information Sheet. Once the financial institution has been chosen, and before committing to it, they will give you the Personalized Information Sheet at no cost, which will detail the financial conditions of the loan they offer.

4.Ask for a binding offer. Once the loan has been applied for and the appraisal carried out, it is convenient to ask the financial institution for a binding offer with all the financial conditions of the contract. The binding offer will have a validity period of no less than fourteen calendar days from its delivery date. If it is done at the same time as the Personalized Information Sheet and their content coincides, both can be delivered in a single document.

Mortgage loan deed

• Once the binding offer is accepted, the financial institution will send the documentation to the notary chosen by the buyer to prepare the deed of sale and the mortgage loan deed. Remember that the buyer has the right to choose the notary.
• It is important to remember that the buyer has three business days before signing the deeds to examine them thoroughly with the notary’s advice and request clarifications and changes from the financial institution if necessary.
• The loan is usually delivered simultaneously with the signing of the deed of sale.
• After signing, the notary will send the property registry an authorized electronic copy of the deeds of sale and the mortgage loan.
• When the loan has been paid, there would be a last step: the public deed of cancellation of the mortgage. It is signed only by the representatives of the financial institution at the request of the debtor, who has the right to choose the notary who authorizes it and advises him on the expenses, which will be at his own expense. Once signed, it is registered in the Property Registry.

Interest and clauses

Interest:  It is the price that is paid for the loan. It is the result of applying a percentage to the money that is owed at all times. The interest rate can be fixed or variable. If it is fixed – something unusual – it is usually higher than the variable. The advantage is that you always know what you are paying since you will not be affected by possible drops or increases in the reference rates during the term of the loan.

However, most people opt for a variable interest referenced to an index to which a differential is added, which will be the minimum interest applicable to the loan in case the agreed reference index falls to zero.

Clauses:  As important as the reference rate and the spread are the clauses that some entities include in their contracts, which limit the variation in the interest rate applicable to the loan. These clauses indicate a maximum (ceiling) and a minimum (floor). It is in the so-called ” floor ” where special attention must be paid because when it is reached, the drops in the reference interest rate do not translate into a decrease in the installments.

The notary:

• It will verify if limits have been established to the variation of the interest rate, they will collect this circumstance in writing, and they will explain its effects expressly and in detail.
• It will inform you of any relevant increase that may occur in your fees, and of the effects of grace periods, if any, on their amount.
• It will verify that the non-financial clauses included in the deed do not imply commissions or expenses that should appear in the financial clauses.

Abusive clauses:

Only judges can declare an abusive clause. When they have done so, the sentence is final, and is registered in the Registry of General Contracting Conditions, notaries must eliminate them from the public deeds. To help them in this work, the General Council of Notaries has created the Body for the Control of Abusive Clauses (OCCA). In this way, legal certainty in hiring is increased and it helps to prevent legal challenges.