How are mixed mortgages granted in Spain?
174 million euros. This is the total amount of mixed mortgages that were contracted in April 2019, according to the latest data from the Bank of Spain. This is the only official data that can be found on these types of loans in official bodies. In percentage terms, mixed mortgages were the least demanded by the Spaniards in April, they only accounted for 4.52% of the credit requested from financial institutions.
The highest percentage of financing was that of variable mortgages that accounted for 37.30% of the credit granted in April, followed by fixed mortgages that recorded 31.58% of the credit granted that month. The rest, until reaching 3,850 million total, were for special mortgages with a fixed term between 1 and 5 years, these requested 1,024 million euros, or what is the same 26.60%.
Since September 2017, financing for mixed mortgages has not dropped below 100 million euros. What has meant in several months percentages above 4% of the total financing. Moreover, in February 2019, the historical maximum in financing was reached for this type of loans, reaching 5.99%. The data indicate a growth of these mortgages although the conditions, in the beginning, are not the most favorable for this type of loans.
Logic says that mixed mortgages should have fallen since 2016, the year in which the Euribor fell to negative records. However, the reality is that the volume of these loans is currently the highest since 2003. Moreover, 10 years ago they did not represent in many months or 1% of the volume of the mortgage loan requested while in 2019 they have been about to assume 6% of monthly financing in February.
What kind of clients are looking for mixed mortgages
Mixed mortgages are characterized by dividing the loan into two parts, the first is made up of a fixed rate tranche and the second part is a variable rate (referenced by the Euribor).
In this table you can see the main characteristics of each type of mortgage. In the case of variable mortgages, the TIN of the variable tranche stands at 2.34%, according to the latest INE data for the month of April. In the case of fixed lines, the average of the TIN, according to the INE, is 3.11%. In the case of the mixed, the National Statistics Institute does not provide averages, so the data is the average of the commercial offers of the entities that offer mixed mortgages.
In the variables, the revision of the quota can be semiannual or annual with the value of the Euribor. In the fixed ones, the client will always pay the same fee and in the mixed ones the variable tranche will follow after the fixed one.
The ignorance in many cases by clients and the low supply of these mortgages make them not very popular. “Many citizens when they contact us usually have more or less clear the type of loan they want, most ask about fixed or variable rates. Sometimes it is on the recommendation of a family member or friend, we help them analyze their personal and economic situation so that they choose the mortgage that best suits their needs, ”explains the Mortgage Director of iAhorro, Simone Colombelli.
What kind of clients may be interested in a mixed mortgage?
“Mixed-type mortgages may interest customers who have the confidence to repay the loan, after the initial fixed-rate period, in the first years of the variable-rate period, avoiding the uncertainty of whether this will evolve downwards or, Above all, up. This confidence can derive their ability to save or the expectation of receiving an extraordinary income in these initial years of credit, ”said José Mª López Jiménez, a Doctor of Law and an expert in iAhorro.com.
Mixed mortgages offer customers lower interest rates on the fixed tranche than fixed mortgages themselves. In this way, a client with a mixed mortgage pays less fee on the fixed tranche than the one who has chosen a 100% fixed mortgage. On the contrary, it faces great uncertainty about how the Euribor can be at 10 or 20 years, depending on the type of loan chosen.
Paz Comesaña, Director of Marketing, Products and Cross-sell of EVO Bank, points out that these types of clients “do not like to take risks and want to take advantage of an environment of very low interest rates, choosing a mixed type because having a term longer than fixed-rate mortgages, they can obtain a lower monthly installment since the interest rate on these mortgages is lower ”.
Why talk about the ‘bad reputation’ of mixed mortgages
Neither financial institutions nor clients. Mixed mortgages are not usually very popular among the general public. In the case of banks, at present, we can only find this type of loans in Bankinter, ING, Abanca, Ibercaja, Openbank and EVO. Is it why they have a bad reputation? “We do not believe that it is a question of having a bad reputation, what may have happened is that the clients that acquired it with high interest rates have found a higher interest rate than they would have had if they had chosen a variable mortgage, but That is the same thing that would happen to a client who, in that high type environment, chose a fixed mortgage. Today, a mixed mortgage offers very competitive financial conditions and a security to the client of their payment commitments in the face of changes in the market, ”said Paz Comesaña.
José Mª López Jiménez agrees in the analysis and recalls that the evolution of the benchmark indexes in recent years made these mortgages more expensive. “In other countries, such as the United States, the so-called“ cheat mortgages ”were offered, in which the repayment installments were temporarily low, but skyrocketed after several years of validity of the loan, under the mistaken premise that Given the borrower’s hypothetical difficulties, it would be easy for entities to refinance the credit because housing prices would continue to rise, ”he explains.
Jorge Rodríguez Maroto stands out from the bad reputation of mixed mortgages and points out that “in our view mixed mortgages are a very interesting option that covers the needs of many clients. Our mortgage data proves it. As we have commented, the mixed mortgage fits very well for those who seek the peace of mind of having the fixed fee for the first 10 years that is when more interest is paid, that way the client is shielded from any fluctuation ”.
What is the best scenario to hire a mixed mortgage?
At present, the interest rates of mixed mortgages at 30 years are between 1.50% and 2.20% in the fixed tranche and between 0.99% and 1.40% in the variable tranche. Within the bank offer you can find many differences in the TIN of the fixed part depending on the duration of this. For example, in the case of ING, the fixed period will always be 10 years with a TIN of 1.99% and an APR of 2.34%. In the variable part, the interest rate is Euribor + 1.11% and the APR of 2.34%.
In the case of EVO, if the fixed part is 10 years the TIN is 1.75% and the APR of 1.75%, the remaining 20 years would be calculated with a Euribor TIN + 0.99% and an APR of 1.83%. If the fixed term were 20 years, the TIN would be 1.98% and the 10-year variable part of Euribor + 0.99% with an APR of 2.32%.
“The current scenario, in which interest rates are so low, you can ensure a fixed monthly fee during the first years of life of the mortgage, which are usually the most difficult years to deal with the mortgage; so you avoid possible scares before a rate hike. The mixed mortgage EVO does not have any commission for early amortization, so if the time of the variable rate period arrives, the benchmark index will skyrocket, the client always has the possibility of repaying capital in advance without any cost ”, explains the Director of Marketing, Products and Cross-sell of EVO Bank.
For his part, the director of Financing of ING emphasizes that the decision to choose between a mixed mortgage or another depends on each client, although he indicates that “an environment of certain types can make you opt for one option or another”. Jorge Rodríguez Maroto points out that the choice must be taken by the client, “the important thing is that you choose the best option that suits your needs, comparing both options and thinking not only of the particular context, but also of your particular financial situation. “
In mixed mortgages, the fixed rate is always in the first years and then the variable tranche arrives, “starting from this base, the greater the effective repayment term, the greater the uncertainty for the borrower associated with these loans, due to the risk of interest rate. On the contrary, the greatest certainty for the debtor will be in the initial phase of validity, when the rate is fixed and the cost associated with the loan is predetermined in advance ”, therefore, and as explained by a doctor of law and an expert in iSave. com, “the ideal scenario is one in which there is an increase in interest rates in the medium term, and the debtor believes that he can amortize the operation soon after the application of the variable interest rate, or even before it” .
What is the future of mixed mortgages?
The Euribor already has 39 months in negative and it seems that in the short term it will not rise, however, fixed mortgages are growing in recent months. Could it be an opportunity for mixed mortgages? “The advantage of mixed mortgages lies in their initial fixed term, currently this differential is lower if we compare them with fixed ones. It may be an option for customers who are looking for stability now and believe that in 10 years the Euribor has been able to go up and down again, ”says Simone Colombelli.
José Mª López Jiménez believes that the moment of mixed types has passed and “the time has come for fixed rates, which may be somewhat more expensive initially, which is offset by their greater transparency and the peace of mind they offer to the customer of for your medium and long term financial planning. ”
Paz Comesaña says that although there is currently a strong offer in the fixed-rate mortgage market, “we believe that mixed mortgages have their niche of clients. In addition, in the current context of low rates, the mixed mortgage maintains the long-term protection of the volatility of interest rates that a mortgage loan may experience. The really differential thing is that they allow us to offer a longer term than for example fixed-rate mortgages, which allows a lower monthly payment and a saving capacity that allows the mortgage to be amortized ”.