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Which mortgage product?

In your home country, you may well be accustomed to seeing a huge range of mortgage products, such as interest-only, low-start, fixed-rate and self-cert.

The Spanish mortgage market is not so developed. Indeed, until fairly recently, a standard capital & interest repayment mortgage was only type of mortgage product available.

Since the Spanish economy began to boom, and the country welcomed an influx of overseas buyers and investors, the mortgage market has naturally matured as more lenders enter the market, all seeking to win new clients by offering better and more product choice.

Nowadays, buyers have access to a decent range of products, including the following:
  • standard repayment
    a proportion of each repayment goes towards paying off the mortgage capital and a proportion is used to repay the interest on the loan. Normally the rate of interest is variable and linked to euribor. At the end of the mortgage term (typically 10 – 30 years), the monthly repayments will have paid off the capital and interest and you will then own the property entirely.

  • Interest-only
    Very popular with investor clients, this product requires you to only repay the interest on the loan. Therefore, the monthly payments are much cheaper, but no funds are ever used to repay the loan capital. At some point, the bank will expect you to begin re-paying the capital, and so interest-only mortgages are normally only available for a fixed time (normally between 3 and 20 years), at which point you would need to secure another mortgage product, typically a standard repayment mortgage. Most investors use an interest-only mortgage to avoid large monthly payments, and then seek to re-sell the property at a higher price at a later date. Although the entirety of the mortgage capital will need to be repaid at that point, in a rising market, the seller will be sitting on a profit in any event.

  • self certification (self-cert)
    Self-cert mortgages are very popular with buyers who have difficulty in supplying the relevant paperwork normally required for a mortgage application (typically those who are self-employed or those who have started a new job etc). The buyer certifies that he/she will repay the debt and the funds are made available for the purchase. Due to the increased risk exposure for the bank, the maximum loan to value tends to be 60%, and there are a number of expensive set-up costs and processing fees associated with the product.

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