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Mortgages and loans


Most people deciding to buy a home need to apply for a mortgage loan from a financial institution in order to cover the payment. The first step to be taken, then, is to find out full information about the existing offers and the obligations you will be entering into.

1. Mortgage application
2. Public notarial instrument
3. Registration of the loan
4. Cancellation
5. Main characteristics of loans
6. How the loan is repaid
8.Other obligations of the borrower
9.Transactional expenses
10.Novation and subrogation of loans


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There are two different and complementary elements:

  • A main mortgage contract, by means of which a person or entity (the creditor, typically a bank or savings bank) lends an amount of money to another (the debtor).
  • The mortgage, which is the guarantee that the debtor, or another on his behalf, provides to the party lending the money. It comprises a real estate property (or several) being offered and established as surety that the loan will be repaid, which means that if it is not repaid on the established dates, the bank or savings bank could, through an abbreviated procedure, sell off the mortgaged property by public auction to collect the amount owed, with any surplus being used to pay other creditors or, if there are none, to be handed over to the debtor.

As the bank or savings bank has a particularly effective guarantee, namely the mortgaged property, it can grant the loan over a longer term and at a more advantageous interest rate than for a personal loan.

The property, unless it is sold in the event of non-payment, is still owned by the debtor, who can sell it, lease it or remortgage it.

This is not the only form of guarantee possible. The financial institution often requires in addition to the mortgage a guarantee comprising one or more people in support of the debtor, undertaking to make payments if the debtor himself does not.

Universal liability: It should be recalled that the debtor taking out the loan is liable with all his present and future assets for payment of the mortgage loan. If the sale of the mortgaged property does not raise enough to cover the debt, the banks that granted the loan will demand that the debtor make the payment with any other assets that he might then or in the future own.

Liability limited to the mortgaged property: Nonetheless, there are now banks that grant mortgage loans in which the liability of the debtor is limited solely and exclusively to the mortgaged property, releasing any other assets that the debtor might then or in the future have in the event of non-payment of the loan.

1. Loan application

These are the steps to be followed by a private individual with a bank or savings bank to acquire a property, this being the most typical circumstance, although it would apply to any loan with a mortgage. This is general advice. Remember that it is advisable in the event of any query to contact a notary, as he will be involved in any mortgage and is the individual able to offer you independent, impartial advice, free of charge, about any aspect of the mortgage loan.

Issues of interest:

1.1. What amount to request: It should be borne in mind that, in addition to the purchase price of the home, the mortgage loan involves substantial expenses: taxes (between 0.75% and 1.5% of the capital requested, plus interest and costs, depending on the autonomous region), the arrangement fee charged by the bank (which may range from 0% to 1.5%); the services of the notary, land register, administration, valuation, analysis, fire insurance and, on occasion, life insurance and other financial products. These must therefore be taken into account in order to calculate the amount to be requested not only to pay for the house, but also to ensure there is sufficient to cover all these other expenses.

However, in relation to the mortgage loan expenses, the decision of the Supreme Court of December 23, 2015 declares abusive the clause that imposes on the borrower the payment of all expenses, taxes and commissions derived from the mortgage loan, to generate an imbalance To the consumer, so at this point it will be necessary to take this sentence into account in order to know how these expenses are passed on.

Bear in mind that lenders do not typically offer loans of more than 80% of the value of the property, and that they will normally allow monthly payments that are no greater than 35% to 40% of the income of the loan applicant.

1.2. Obtain information from several credit institutions by means of the FIPRE (pre-contractual information sheet): Given the importance of the operation, you should not simply talk to the bank or savings bank you have always dealt with. It is important to compare various offers, since completing information could even help in negotiations with your regular bank. Basic issues are:

- the fees charged by the bank

- the interest rate applied: whether it is fixed or variable, and if it is variable, the reference index (Euribor, IRPH...); the margin to be added to the reference index (the margin is a fixed percentage that is always added to the reference index) and the tie-in products.

- the repayment term.

- any additional obligations (current accounts and direct debits, or insurance tied to the granting of the mortgage loan).

The basic information about a mortgage loan is issued by means of an information sheet known as the FIPRE ("Pre-contractual Information Sheet"), which banks are in general required to present free of charge to any loan applicant, providing information about the mortgage loans that they offer.

1.3. Apply for the loan and obtain the FIPER and Binding Offer: Having compared the FIPRE information from various banks, the customer will choose the loan that seems most appealing and apply for the FIPER ("Personalised Information Sheet"), which is more specific, a "tailored" offer in accordance with the customer's financial situation and financing needs. In order to draw up the FIPER the bank will conduct a preliminary study free of charge as to the viability of the operation, and in particular the ability of the customer to make payments. If the customer has sufficient payment capacity he will be informed of the need to value the property and verify the encumbrance situation with the Land Register. The costs involved in this are borne by the customer. If the valuation provides an 80% loan-to-value ratio and the register verification reveals there are no encumbrances, the bank will provide the customer with the FIPER, charging only for the valuation and register verification, in order to inform the customer of the specific characteristics of the operation. This information sheet must include:

1. The capital granted.

2. The repayment term: number of instalments, frequency of payment, amount and date of payment, and the implications of partial prepayments.

3. The interest: the initial nominal rate, the reference index for subsequent adjustments, the margin to be added to the adjusted interest rate, the "collar" and "cap" clauses, with information about the maximum and minimum interest rate and the maximum and minimum amortisation payment, and an amortisation table.

4. The fees.

5. Other costs: valuation, notary, register.

The FIPER must also have attached a document regarding the periodic instalments to be paid in the event of different scenarios for the evolution of interest rates, with maximum, average and minimum values for the reference rates over the last 15 years. This will allow you to evaluate the implications and costs, and to reach a reasoned decision as to whether you wish to sign the contract or not.

It is important to bear in mind the characteristics of the loan recorded on this personalised information sheet do not represent any obligation for the bank. In other words: it is not obliged to grant the loan or to comply with the conditions set out if it can argue any objective change in market conditions, or the property to be mortgaged, or the customer's circumstances.

The case is quite different, though, if the customer requests a binding offer from the bank. It is in fact advisable to do so, since the conditions in the binding offer are unchangeable, and are the terms that will be included in the notarial public instrument. This binding offer will be provided by means of a FIPER, which will furthermore specify that it corresponds to a binding offer. With certain exceptions, it will be valid for at least 14 calendar days. In Catalonia, next to the binding offer must also be delivered the public deed of mortgage loan that will be signed a few days before the notary.

2. Notarial public instrument

2.1 Choice of notary: Once the binding offer has been accepted, the documentation is sent to a notary for him to prepare the public instrument. It is very important for you to be aware that the customer is entitled to choose the notary before whom he wishes to execute the public instrument, even if this is not expressly stated in the prior documentation. The customer must inform the bank or savings bank the notary office where he wants to authorize the public instgrument of the mortgage loan.

2.2 Right to examine the public mortgage loan instrument: You are also entitled to examine the draft instrument (drawn up by the notary in accordance with the legislation in force) at the notary office for a period of 3 working days prior to signature of the instrument, except in Catalonia, where this period is 5 working days. It is highly advisable to perform this examination in order to be able to correct any error or deviation from the negotiated conditions in time.

If there are any deviations between the binding offer and the financial content of the mortgage loan contract, the notary is obliged to inform you, and you may abandon the operation or demand that the bank rectify the contents of the contract.

Meanwhile, in the event of any abusive clause the notary must call on the bank to eliminate it, provided that the Supreme Court has declared it as such, and it is registered in the Register of General Contractual Conditions.

If you accept the content of the instrument, the next step is to agree a date of signature.

2.3 Execution of the public instrument: this does not simply mean signing before a notary. The borrower/debtor may ask for time to read the instrument, and the notary himself will then read out and explain the content of the mortgage loan. The contract, drawn up by the notary in accordance with the draft text presented by the bank, is typically lengthy, but it is important to pay the utmost attention, and to ask any questions you may wish of the notary.
Before the signature, the notary will consult the Land Survey and the Land Register, to confirm that no type of encumbrance or limitation has arisen, and inform about it.

This is the final opportunity to clarify any doubts that you may have, as once the public instrument has been signed, there is no going back.

2.4 Who signs: The legal representative or representatives of the bank as lender and the recipient or recipients of the loan as borrower/s; that normally will be the owner or owners of the mortgaged property. Although it is also possible for a person to receive the loan and another to guarantee a property that belongs to him called mortgage guarantor; guarantor because he gives his property in guarantee of repayment of the loan by the borrower and mortgage because it constitutes mortgage on his estate, which he can lose if the borrower does not return the loan.

2.5 Guarantors: The bank may on occasion demand that in addition to the property, the loan be guaranteed by another person, other than the borrower. Particular care must be taken here, since if the borrower does not pay, the bank can call on the guarantor to repay the amount of the loan pending in one single payment, without even being required to demonstrate that the debtor has no assets capable of covering the debt.

2.6 Documents to be retained: It is advisable for the customer to retain the uncertified copy of the public mortgage loan instruments signed before the notary, in addition to subsequent payment instalment documents, in order to check that the terms comply with those agreed. The customer will receive an uncertified copy, together with the settlement documents for the corresponding taxes and expenses, normally from the bank's administrative agency. You can also request an uncertified copy of the mortgage loan directly from the notary.

3. Registration of the loan

In order for the mortgage to take effect against third parties, it has to be registered with the Land Register. To this end, immediately after signature the notary will send an authorised notarial digital copy to the Land Register online, with the status of a public instrument and the same value as the hard copy.

Stamp Duty must also be settled. This tax varies from region to region, and is a percentage (of between 0.75% and 1.5% depending on the region) applied to the total amount guaranteed (note that this is not simply the capital of the loan, but the entire amount guaranteed by mortgage, namely the capital plus interest and costs, which as a rule of thumb would be around half of twice the loan capital). This tax can now be paid via the notary office electronically.

However, in relation to this tax we must remember again the judgment of the Supreme Court of December 23, 2015 that declares abusive the clause that requires the borrower to pay all taxes derived from the mortgage loan, to generate a consumer imbalance, So at this point will have to be taken into account this sentence when knowing how this tax is passed on.

4. Cancellation

This is performed after the loan, as the final step once the loan has been settled. Once the loan has been repaid in full, the mortgage, which is the guarantee that the loan will be paid, no longer has any meaning and does not take effect, although a formal act is required in order to confirm this expiry in the Land Register, a process known as cancellation.

A notarial public instrument must therefore be executed for the cancellation of the mortgage, the expenses being covered by the debtor, in other words the party that applied for the loan or subrogated it. The debtor does not need to take part in the execution of this instrument, as it is performed by the representatives of the bank or savings bank, by stating that the debtor has repaid the capital of the loan with all interest and expenses, requesting that the Land Registrar cancel the mortgage. Once it has been signed before the notary, the instrument of cancellation is presented at the Register, where it is then registered, leaving the property completely free of any mortgage.

Mortgage cancellations are not subject to any taxes.

5. Main characteristics of loans: Interest and APR

5.1. Interest: This is the price paid for the loan. The bank is not only repaid the amount loaned, but also a percentage of the debt owed at the time in question. This percentage is the interest, the bank's profit from lending money.

The interest may be fixed, if it is agreed that it will remain unchanged throughout the lifespan of the loan.

The so-called "cost of money", or interest, varies in the marketplace, and it is therefore common for mortgage interest to be variable. If this is the case, it makes sense to examine the evolution of the reference rate selected by the bank and its current value. It is important to remember to add a margin typically established by the bank to the reference rate.

Just as important as the reference rate and margin established for variable interest loans is the "collar", which is the minimum interest rate applicable to the loan, irrespective of changes in the reference rate.

At this point it is necessary to take into account the Judgment of the Supreme Court of May 9, 2013 that declared the ground clauses abusive because they did not meet the requirements of special transparency required in contracts with consumers and the obligation to report clearly and highlighted in the pre-contractual phase, so that a comparison can be made with other loan products with any entity and opt after having sufficient information.

It is likewise very common for variable interest loans to establish an initial period (the first year or first six months) during which the interest is fixed (although an initial fixed interest rate may also be agreed for more than a year, followed by a variable rate modified every year or half-year). It should be borne in mind that this initial rate is very often lower than the rate that will subsequently be applied, which means that the first instalments (during the fixed interest period) will be lower than subsequent payments once the interest rate has been adjusted.

5.2 The APR: To compare the various offers it is very important to note the "Annual Percentage Rate" (APR), which is the rate that is actually paid, taking into account the fees charged by the financial institution, and the form and time of the payments (monthly, quarterly, in advance or in arrears): these various options mean that the amount you actually pay over a year will deviate from the amount you would have paid taking into account only the nominal rate.

The APR could be described as the "real" interest rate on a loan, since it includes not only the nominal interest but also other expenses and how repayments will be made. To compare the costs of a loan, rather than looking at the nominal rate you should focus on the APR: having analysed two loans, if you find that one has a higher APR than the other then it will be more expensive, even if the nominal interest is lower.

To find out the current rate of the main references for mortgage loans, go to

6. Loan repayment method

6.1. Total term: Number of years over which the loan is to be repaid. The longer the term, the greater the interest paid, and so the more that is paid overall.

6.2. Frequency of instalments: This is typically monthly in almost all cases.

6.3. Amount of the instalments: This is essential in order to ascertain whether you will be able to meet the loan repayments.

- If the interest rate is fixed throughout the duration of the loan: the instalments will be the same throughout the loan. Fixed interest loans have the advantage that you will know from the outset the precise amount that you will pay each month and the total paid by the end of the loan, although typically with this type of loan the interest rate is higher than a variable rate.

- If the interest is variable: again, there is typically a fixed interest period and a second variable interest period for the same time. During this second period a reference interest rate is established (Euribor, Public Debt, IRPH, etc.), to which a certain percentage margin is added. This calculates the instalment to be paid. For each adjustment period (whether a year, six months or a quarter), this interest rate agreed is once again applied, with any increase or decrease since the previous occasion, adding the margin to calculate the new instalment for the following period, which may be higher or lower than the previous period.

6.4. Possibility of early repayment: It is possible to advance amounts of the loan, to reduce the sum outstanding or to repay it in full, prior to the established end date. Each different bank establishes its conditions for this option.
It is important to take several factors into account:

- The fees charged by the bank for partial or total early repayment, above all in the case of fixed interest, since the fee is typically higher.

- If there are minimum or maximum amounts for the early repayment.

- And if it is possible, in the case of a partial early repayment, to opt either to reduce the length of the loan term or reduce the periodic instalment, or whether just one of these options is offered. Usually it is more advantageous, economically speaking, reducing time and maintaining the quota. However, it is also necessary to assess the monthly relief that may mean lowering the quota by maintaining the term of the loan.

7. Fees

These are the amounts that the bank will or could charge for various items. The most significant fees include:

7.1. Arrangement fee: This has a significant impact on the real cost of the loan. It is included in calculating the APR. A percentage that the bank charges on one single occasion at the outset of the loan. The arrangement fee includes by law the so-called home mortgage loan analysis fee (paid to the bank for the analysis and viability study of the operation), which cannot now be established as a charge separate to the arrangement fee.

7.2. Total or partial early repayment fee: mortgage loans arranged before 9 December 2007 are subject to this fee if the holder prepays some or all of the debt pending. For variable rate loans these fees are now typically between 0% and 0.50%.

7.3. Compensation for partial or total repudiation: created by Act 41/2007. This Act
specifies that mortgages arranged from 9 December 2007 onwards, with an interest rate adjustment every 12 months or less, guaranteed by a home and made out to a natural person or legal entity paying tax under the small enterprise tax regime, will, if a partial early repayment is made or the whole of the mortgage loan is repaid, be subject to a maximum fee of 0.5% during the first five years of the loan, and 0.25% from the sixth year onwards. This means that the fee could range from 0% up to the maximum legally permitted. In addition, the bank will be obliged to issue the bank documentation accrediting payment of the loan without charging any fee for this. In all other cases, such as a fixed rate mortgage or where the interest is adjusted less frequently than every year, or does not apply to a home, or is not applied for by a natural person or a legal entity subject to the small enterprise tax regime, this fee has no established legal limit.

7.4 Interest Rate Risk Compensation Fee: This is a fee charged by the lender on fixed interest mortgages or mixed mortgages (with a fixed interest period greater than one year), or variable mortgages with an adjustment period longer than 12 months, when cancellation would lead to a loss of capital for the bank. The fee can typically amount to 5% of the capital owed.

7.5 Debtor subrogation fee: charged in the event that the mortgaged property is transferred, usually by sale, and is paid by the acquiring party that, when subrogating the mortgage, becomes the new debtor.

7.6. Conditions modification fee: established to cover the possibility that any of the initially agreed conditions might be modified, in particular the interest rate or period. This fee will vary depending on the bank, and may range from 0% to approximately 2.50%. If the term is extended, the maximum fee by law is 0.1% of the capital pending. Meanwhile, in a term extension, or if the interest rate conditions are changed, or the financial conditions (amortisation system) are modified, then the notarial and register expenses are lower. See novation and subrogation of loans.

7.7. Creditor for changing of credit entity fee (also called subrogation): established for cases in which the debtor decides to transfer the mortgage to another bank offering better conditions during the lifespan of the loan. According to Act 2/1994, this fee will be the one agreed, at most 1% of the capital pending. However, if the creditor entity demonstrates the existence of economic harm not entailing simply a loss of profits, and directly occurring as a consequence of the early repayment, it may claim for damages. Such an argument raised by the creditor will not prevent the subrogation from being performed, and will simply give rise to compensation, at the time in question, for the amount corresponding to the damages arising. Since Act 41/2007, mortgages arranged after 9 December 2007 with an interest rate adjustment period every 12 months or fewer, applied to a residential property and made out in favour of a natural person or a legal entity paying tax under the small enterprise tax regime, are subject to a maximum fee of 0.5% for the first five years of the loan, and 0.25% from the sixth year onwards. This means that in such cases the fee may range from 0% up to the maximum of 1% permitted by law.

7.8. Unpaid instalment demand fee: A fixed amount is charged every time the debtor is late in making a payment of the mortgage instalment, to cover the expenses entailed in the failed payment and the procedures to recover the instalment unpaid. The fee charged depends on the bank, and is between 20 and 39 euros.

8. Other obligations of the borrower

In addition to paying the instalments, the debtor is subject to certain additional obligations which likewise must be fulfilled. Insurance must be arranged on the mortgaged property, typically to cover damage and fire, although banks and savings banks sometimes also require life insurance at least during the first year of the loan. The obligation is, of course, to make payment of the first yearly insurance premium although it can always be canceled and must pay back the excess paid for the part of the year not fulfilled.

The owner must also remain up-to-date with payments of IBI (municipal property tax), the expenses charged by the property owners' association and, where applicable, any other taxes that might apply to the property, such as urban development taxes.

9. Transactional expenses

The costs of the operation, apart from the appraisal, insurance and the commission of opening and study that can be charged by the financial institution, are broken down into four: notary fees, taxes for documented legal acts, registry fees and the fees of the agency. In any case, the credit institution should give you a detail broken down of all the expenses derived from the mortgage loan and must take into account the Judgment of the Supreme Court of December 23, 2015, which we have previously quoted, which declares abusive the clause that imposes to the borrower the payment of all expenses, taxes and commissions derived from the mortgage loan, for generating a consumer imbalance.

Guideline to the overall expenses:

9.1. Prior to execution of the public instrument: The bank will perform a valuation of the property or properties that are to be mortgaged, commissioned from a specialist firm.

Information will be requested from the Land Register to confirm there are no encumbrances affecting the property or preventing the operation (essentially other mortgages or attachments).

The expenses for these procedures must be paid, if they have been performed, even if the loan is ultimately not granted.

9.2. Expenses paid when signing the public instrument.

- Arrangement fee: (See 7.1 Fees).
- Stamp Duty: (See 3. Registration of loans).
- Notary: the public mortgage loan instrument. The bill will depend on what is requested, and is established in the tariffs approved by Royal Decree.
- Land Register: the registration of the mortgage. As with the notaries, the bill depends on what is requested, and the tariffs are approved by Royal Decree.
- Administration of public instruments: Once the public instrument has been signed, it is sent to the register electronically by the notary, offering the utmost guarantees of security. Stamp Duty must also be paid, and a copy of the instrument presented at the Land Register. All of this can now be performed online from the notary office itself, immediately after signature of the instrument. Although all this can now be performed directly from the notary office, these procedures are typically handled by an administrative agent appointed by the lender. It is worth finding out how much this administrative procedure costs, as the rates can vary considerably. You should not allow the bank to impose an administrative agency that provides an abnormally expensive service.

It is important to bear in mind, when making your calculations, that these are the expenses for the mortgage loan. If this is preceded by a sale, other expenses will accrue.

10. Novation and subrogation of loans

Changes in the credit market over recent years mean that those who have arranged a mortgage loan with a credit institution may find that the interest they are paying is higher than the average market interest rate. It is possible to negotiate an interest rate reduction with the financial institution or, if this is not possible, to transfer the loan to another bank offering better terms.

To facilitate these operations and reduce costs the government introduced Act 2/1994, of 30 March 1994, on the subrogation and modification of mortgage loans, distinguishing two circumstances:

10.1. Novation of mortgage loan: When the requirements of Law 2/1994 are met, that is to say that the modification of the mortgage loan refers to the conditions of the interest rate initially agreed or in force, to the alteration of the term of the loan, or to both circumstances, this deed of modification of the mortgage loan will be exempt from tax and will have a sharp reduction in the fees of the notary and the register of the property. It is necessary to take into account the possible commission that can be charged by the bank, which is usually called 'Commission for modification of conditions', if it is agreed in the mortgage deed. (See 7. Commissions)

10.2. Subrogation of the mortgage loan: If you cannot obtain the desired improvement of terms from the bank that initially granted you the loan, you have the option of transferring it to another bank. This is known as a credit institution subrogation.

The procedure essentially comprises contacting a bank offering better terms for the loan that the one we have at the moment, which will then need to issue a binding offer. This offer must set out the new terms offered, and the new bank cannot then charge any fees or expenses not agreed in this offer. The new financial institution then serves notarial notice of the offer on the previous bank, which may within a period of 7 calendar days issue a certificate confirming the precise amount owed, although the bank is not legally obliged to issue this certificate.

Following presentation of the certificate, during the next 15 calendar days after notification the creditor entity may accept the interest terms offered by the other bank, in other words it can match the offer of the new bank, which it will need to declare before the same notary who served the notice, in which case the subrogation would not proceed. To this end, it must within a period of 10 working days present the borrower a new offer matching or bettering the terms of the binding offer of the other bank.

If the original bank does not issue the certificate within 7 days, or even in case it does issue it, if it does not avert the subrogation within 15 days matching or bettering the binding offer, the public instrument of subrogation is then executed. By means of this instrument, the new bank takes the place of the previous bank, transferring the amount owed to it and subrogating the existing mortgage loan, respecting the previous conditions, except as regards the new interest rate terms, the duration, or both.

10.3. The cost of the operation is essentially determined by the bank fees, since as with a novation both the tariffs for the notarial instrument and the register charges are reduced, and no taxes are payable.

The previous bank will first need to be paid the applicable amount by way of the cancellation or creditor entity replacement fee. This fee is calculated on the part of the capital pending at the time of subrogation, and will apply only if expressly so agree in the mortgage instrument (See 7. Fees)

If the pre-existing interest rate is fixed, there is no legal limit. It is therefore advisable to consult the fee established in such circumstances, which will be recorded in the public instrument establishing the mortgage loan.

An arrangement fee may likewise be payable to the new bank. This is entirely unrestricted and is down to the negotiation with the customer. This is a further aspect to take into account when evaluating whether the cost of the operation is worthwhile given the reduction in interest.


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