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What mortgage repayment term is best for me?

The age at which the mortgage is contracted or economic solvency are key factors in setting the repayment term

A mortgage consists of several essential elements, among which it is worth highlighting the monthly payment and the repayment period. The monthly installment is the amount of money that, if you are the holder of the mortgage contract, you have to pay each month to repay the loan, adding the interest applied by the bank to the money borrowed. For its part, the repayment term is the period of time that you will have to return the money borrowed together with the interest. Experts recommend that, at most, this term be 30 years. To fix it, the advice of the bank is key, which will determine a longer or shorter term depending on the amount of the mortgage and your financial situation.

As a general rule, it is advisable that the money allocated to the monthly payment of the mortgage installments does not represent more than 40% of the monthly income of your family unit. In addition, you need to have savings of around 35% of the total cost of the home to be able to cover both the part that the bank does not finance (the bank finances up to 80% maximum, so you have to have savings at least 20%) and the expenses associated with the operation (which are usually between 10% and 15% of the total cost of the operation).

It is also important to set the repayment term, since banks usually place the maximum age that the holder can have at the time of finishing paying the loan at 75 years.

The mortgage payment based on the repayment term

A person who requests a variable mortgage without a subsidy for the purchase of a home for an amount of 200,000 euros (requesting a maximum of 160,000 euros of capital) and with a repayment term of 23 years, referenced to the Euribor and with a differential of 1 75%, you have to pay a monthly fee of 766.83 euros the first year and 931.53 euros the rest of the years. With this same example, but with a repayment term of 30 years, the monthly payment is 636.36 euros for the first year and 812.66 euros for the rest of the years.

How a mortgage is amortized

Mortgages in Spain are based on the French amortization system, which supports constant installments and a higher mortgage interest payment at the beginning of the loan, while it is at the end when the greatest weight of the financed money is paid. This system consists in that “the owner pays the same every month. However, at the beginning of the life of the loan, he pays more interest and less capital, although as the years go by this situation is reversed. This occurs because the bank calculates the interest based on the outstanding principal. As the installment is paid every month, the debt is going down and, therefore, the interest too ”.

What is early repayment?

The amortization of a mortgage consists of repaying the mortgage loan in advance, either through the reduction of installments or terms. Throughout the life of the loan you can request the change through these two ways, although before doing so it is important that you take into account certain elements:

• The cost, since there may be penalties for the amortization of capital in the form of commissions. Therefore, it is important that you carefully review the conditions of the mortgage loan.
• The interest rate, to find out if the mortgage is at a fixed rate or a variable rate.
• Tax deduction, given that mortgages signed before January 2013 have a deduction of 15%, with a limit of up to 9,040 euros per declaration.
• The financial needs in the short and medium term that you have.
• The reduction in liquidity that you will have, since by allocating capital to early repayment it is possible that your ability to react to potential future unforeseen events will be limited.

In any case, before signing a mortgage or, if you want to make any change in the repayment term, it is advisable to have the professional advice of an expert, such as that of the bank, who will help you throughout the process and will resolve all the doubts that may arise.

Do you want an expert to advise you without any commitment? Let yourself be advised by a specialist.

The mortgage is a very important decision when buying a home. As experts in the real estate sector and, above all, as buyer agents that we are, our advice is that you always let yourself be advised by professionals who know which mortgage is best for each person.

Marbella WOHNEN Immobilien

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