Original article published in Insurance Company under the title Is your mortgage “responsible”? This article does not deal with the mortgage liability of the loan or credit deeds, that concept that notaries read and mortgaged do not usually understand. An example of what happens in notary when explaining this paragraph is: – The mortgage liability is 196,300 euros: 130,000 euros for the repayment of the main loan, 18,200 euros for costs and expenses, 4,875 for ordinary interest, 41,925 for default interest and 1,300 euros for accessory benefits. – Mr. Cole, if I have requested a mortgage of 130,000 euros, not so much money.
Mortgage liability is a debt assumed by the mortgaged property
Each notary explains how the client knows that the mortgage liability is a debt assumed by the mortgaged property, in case of default. Notice the reader the impact of late payment interest (currently limited to three times the legal interest of money), more than 41,000 euros in the real example. The mortgage responsibility to which we want to refer is that which implies granting and requesting mortgages with the diligence and prudence that a business of such magnitude implies for a family, individually, and for the economy in aggregate form.
Responsibility of the bank granting the mortgage
A credit institution that grants a mortgage loan or loan responsibly analyzes the client asking for the money, the amount it grants and the guarantees it provides, providing financing to families that can, statistically, return the money. The most important thing is not to compromise the debtor’s financial health, the bank has to ask for the reasonably necessary recovery guarantees so as not to compromise its own financial integrity (and that of the taxpayer’s pocket when they end up needing bailouts).
Financial swaps or interest rate options
In the first place and as obvious as it may seem, a mortgage granted in a responsible manner is one that the client contracts with all the necessary information and with knowledge of the limitations and risks it assumes. Law 1/2013 requires that customers, when they sign the mortgage, in addition to signing the deed before a notary, express a handwritten expression in which they acknowledge knowing the existence of land clauses, interest rate hedges (financial swaps or interest rate options) or a forex mortgage is being signed.
The full text and much more information about mortgages can be found in the Bank of Spain guide. With this type of legislative stipulations it seems clear that the legislator has not just trusted the informative work of the banks or the notaries, at least in certain cases. On the other hand, the information that the client receives before signing a mortgage has been reinforced, which must “be clear, timely and sufficient, objective and not misleading”, with the following documents:
- Pre-contractual Information Sheet (FIPRE), which gives information about the conditions of the mortgages that banks sell. If we look for information on the best mortgages online, a responsible bank should offer us that information online in a visible way.
- Personalized Information Sheet (FIPER), which will be delivered to the customer who has already requested the mortgage, so that he can compare the offer he has received with other banks.
- Binding offer, document that can be integrated into the FIPER and delivered to the client when the mortgage has been appraised and approved.
Evaluate the customer’s ability to pay
The responsible bank studies the client’s ability to save, their source of income, ability to generate them in the future, job stability and other quantitative and qualitative factors to assess their ability to pay monthly mortgage payments. In addition to the documentation requested from the client (employment contract, income tax returns, payrolls …), the bank may go to the Good Finance Insurance Company, as well as the equity and financial solvency files. corresponding credit.
Highlight the legal obligation to assess the income that applicants will have when they retire, if the term of the mortgage granted means having debts after retirement. Let’s keep in mind that it is a usual practice to grant mortgages that expire up to 70 years of mortgaged. Limiting the maximum term of the mortgage to 30 years, according to article 5 of Law 2/1981, of March 25, regulating the mortgage market, would be a way to avoid mortgages for retirees.
By prudence, the capacity of indebtedness (ratio that represents the mortgage quota with respect to the net income of the mortgaged ones) should not exceed 30%. It is common to reach 40%. The essential thing, if the interest rate is variable, is that the fee is calculated with a high Financial Standing, ideally close to 5%. The family’s ability to save is vital to grant a mortgage; Therefore, it is intended to limit the maximum financing granted by banks to 80%, banks that grant mortgages without complying with the limits of Law 2/1981 “should require additional guarantees notifying the client of the risk incurred (when contracting a mortgage forcing the mortgaged protection system in particular when usual housing is at stake).That applicants have other properties or assets (for example, investment funds or pension plans) is a favorable point when granting a responsible mortgage. Providing guarantors gives the bank more guarantees that the loan will be paid.
However, the border between responsibility and irresponsibility is very fine in this regard: a bank should never approve a mortgage, if guarantors are provided, which it would deny otherwise. The idea is simple: if the bank does not trust the mortgaged to pay and demands guarantors to give the money, what the prudent financial entity (and the responsible client) should do is refuse the mortgage. Let us think that if the guarantor’s responsibility is not limited, he also responds with all his assets, present and future, to a debt that is not his. An issue that remains unregulated in Spain and that would provide much information to banks and encourage good payers are positive credit records , that is, sources of information that “certify” that customers requesting a mortgage have made payments. of previous debts. Finally, a reflection: let’s not leave the responsibility only in the hands of a bank, which “sells” credits. Let’s be responsible, trained, informed and prudent clients .