The new one Mortgage law still in parliamentary procedure. Among the novelties of the regulation is the one related to amortization, which will be cheaper once it enters into force. Thus, the commission for early repayment in variable rate mortgages will be 0.5% during the first three years of the loan, 0.25% between three and five, and 0% the rest of the life of the loan. same. From pisos.com we tell you what you should keep in mind if you want to prepay part of your debt with the financial institution:
1. Ask your bank. If you have extra money and you want to use it to amortize the mortgage, the first step you should take is to go to your trusty branch and ask them if you are subject to any commission for amortization. The current regulation allows banks to pass on up to 0.5% of amortized capital, although not all loans for the purchase of a signed home reach this limit. Even, there are some who are free of this commission.
2. Fixed or variable ?. The early repayment is treated differently according to whether the mortgage is fixed or variable. For the variables, the aforementioned operates, but for the fixed ones, a compensation for interest rate risk is contemplated. The percentage varies according to the bank. With the new law, this compensation will be applied only if the amortization entails a loss of money for the banks, and will be up to 4% of the amortized capital until the third year. Thereafter, up to 3%.
3. The best time. The same effect is not achieved by amortizing at the beginning of the mortgage than in the end. As time goes by, interest on the loan is reduced. Or what is the same: the bulk of the interest is paid in the first years of the mortgage, since in Spain the French amortization system governs. In this way, the sooner it is amortized, the less interest we will pay, since these are calculated on the outstanding debt.
4. Fee or term ?. For the same reason, it is always recommended to shorten the term instead of reducing the monthly fee. By paying full installments and taking years off our mortgage, we will be paying less interest. However, you have to analyze the concrete financial situation. It is possible that it is preferred to use that extra money to reduce the fee to pay less per month and go more baggy, since with that amount released we can cover other expenses.
5. Opportunity cost. Instead of amortizing a mortgage, it may be more interesting to invest that money saved in a financial product. The key is that the profitability of the product less the retention is greater than the interest cost of the mortgage minus the deduction, in case you can still benefit from it. Do not forget to enter in this equation the risk of investment.