Mortgage loans are like night and day. The conditions that an entity offers to a customer do not have to be the same as those that it grants to another. What is more, the same bank can have several types of mortgages depending on the economic capacity of each client, whether it is the first or the second home and can even give away home insurance for a specific period in order to capture customers.
Now, if anything have, more or less, in common all mortgage loans is that they are made up of a set of clauses that can make asking for a loan more or less advantageous. The main clauses that a mortgage contract can collect are the following:
- Ground clause.
- Ceiling clause.
- Payment in.
- Expected maturity of the loan.
- Type of interest.
- Recruitment of additional services.
What are soil clauses?
The floor clause consists of the establishment, by the financial institution, of minimum interest rates on the mortgage. In these cases, users are the big losers if the variable rate they refer to, the Euribor in most mortgages, is below the limit fixed in the contract.
This clause has prevented thousands of homeowners who are paying a mortgage can benefit from the historical lows that the Euribor is registering in recent months. Thus, if a client has signed a mortgage to “Euribor + 1%” in August he should have paid an interest of 1.469% since that month closed at 0.469%. However, if the customer signed a 3% floor clause under contractual conditions, then this will be the interest he will have to face, despite the fact that the Euribor is considerably lower.
The ceiling clause is the opposite of the floor clause. What it sets is a maximum interest rate on mortgages. The existence of this condition is a prerequisite for a ground clause not to be declared void. What is guaranteed with a ceiling clause is that a consumer will not pay much more in the event that the Euribor is triggered. In this situation, the customer would benefit.
Payment in payment consists of the delivery of the property to the bank with which the mortgage has been constituted to put an end to the debt. Article 140 of the Mortgage Law states that it may be agreed in “the deed of incorporation of the voluntary mortgage that the guaranteed obligation is only made effective on the mortgaged property.” That is, in case the debtor cannot face the dues only respond to the bank with the property on which the debt falls and not with all its assets, as established in Article 1.911 of the Civil Code.
Expected maturity of the loan
In case the contract does not contemplate the possibility of payment in payment, it is usual that among its clauses there is one that refers to the event of default by the customer. If this situation arises, the entity could declare the loan overdue and try to recover the outstanding amount and the unpaid debt through the sale of the property through a judicial or extrajudicial foreclosure of the mortgage.
The mortgage agreement also includes the interest rate, which is the price that the bank will charge the customer for having lent the money. The interest rate can be fixed, variable or mixed, depending on whether it changes over the life of the loan or if it is fixed.
Variable type: it is going to be modified at the end of the life of the mortgage credit in the dates that have been agreed in the contract. The rate will evolve (up or down) based on a benchmark, which in most cases is the Euribor, and which is usually added a constant differential.
Mixed type: during an initial period (6, 12 months …) a fixed interest rate is applied and after this time is changed to a variable rate.
Another important point of a mortgage are clauses that refer to commissions. There are several: study, opening, modifying conditions and / or modality, compensation for amortization, subrogation…
The existence or not of these must appear in detail specified in the mortgage contract since the client must know at all times how much it is going to assume to him to change the bank mortgage or if to change the conditions is going to have some cost.
Hiring additional services
The law obliges all homeowners to have the home mortgaged to have home insurance but the European Mortgage Directive explicitly prohibits all entities that condition the granting of a loan to the contracting of certain products such as a Life policy and / Or Home, for example. What’s more, all those who have contracted any of these products with their bank can unlink them from their mortgage.
Now, another thing completely different, and that many banks usually do, is to link the loan to the contracting of Home, Life or Protection of Mortgage Loans insurance and thus offer a more favorable guarantees.
The entity must clarify in its clauses how the remaining conditions will be affected if it is decided not to subscribe certain products or if, once hired, it is decided not to renew them. The bank should advise the client of the risks to which it is exposed for failing to comply with this condition and, as a general rule, recalculate interest rates upwards and the customer will increase the amount of their monthly fee.
Track mortgage loans
When hiring a mortgage must pay attention to each of the clauses that comprise it, especially you have to be attentive to the clause floor, which can greatly hurt the mortgaged.