The APR or equivalent annual rate on mortgages is an indicator in the form of an annual percentage that indicates the effective cost of the mortgage, including the interest rate, but also bank expenses and commissions.
The APR is a more complete indicator than the annual nominal interest rate (TIN), as it allows you to compare mortgage loans with different conditions (interest rate, commissions, expenses, terms and repayment method) and sees which one is more profitable.
How is the APR calculated on mortgages?
The APR or equivalent annual rate on mortgages is calculated using a mathematical formula that takes into account the interest that the client will have to pay, the commissions and any other type of expenses related to the mortgage loan, with the exception of notary fees. .
Likewise, the costs of the services associated with the mortgage loan contract (such as insurance) will be included if they have conditioned the obtaining of the loan under the conditions offered.
In Spain it is mandatory for the APR to appear in the documentation and advertising of financial products. In the case of variable mortgages, the APR or equivalent annual rate will be calculated based on the assumption that the interest rate and other expenses will remain at the value they have at the time of calculation. In this case, the bank must use the expression “variable APR” for information purposes.
What is the novation of a home loan?
The novation of a home loan is any change that happens in the states of the home loan credit at a time after the marking. So, it is the renegotiation of the credit with the manage an account with which it has been contracted.
What perspectives might the novation of a home loan at any point include?
Contract novation can include various parts of the advance:
- The increment or decrease of the acquired capital
- The variety of the amortization time frame
- The adjustment of the states of the loan cost
- Change of the amortization strategy or framework
- The delivery or consolidation of new private or genuine assurances
- The cash trade in which the home loan is formalized
When an understanding has been arrived at between the borrower and the bank, the home loan contract should be changed, which should be formalized in a public deed and enrolled in the Property Vault. The novation of the home loan suggests, in this way, a progression of notarial and library costs, notwithstanding the commission that the bank might charge for completing the novation.
How many types of mortgages are there?
To find out how mortgages are classified, we start from the interest rate that characterizes each of them. In this sense, we must know that there are reference indices that will set the average interest rate at which, by consensus, banks lend money to each other and, subsequently, lend to third parties (individuals and companies). In the case of Europe, for example, this index is the Euribor.
Thus, we can distinguish between:
- Fixed mortgage: it is characterized by having fixed installments. This means that the monthly amount to be paid to the financial institution is not affected by the variation of indices such as the Euribor. Thus, its main advantage is that, from the beginning, the client knows the interest rate that will be applied.
- Variable mortgage: the installments are the result of the fixed part negotiated with the financial entity plus the interest rate that is applied at the time of the review. Among its virtues, longer amortization periods and lower commissions stand out.
- Mixed mortgage: it is a combination of the previous typologies. Initially, the beneficiary has a fixed interest rate and, as the established term progresses, it passes to a variable interest rate.
To the question “is a fixed or variable rate mortgage better?”, it is not possible to generalize when answering, since the profile of each individual must be taken into account. And it is that the choice of the type of mortgage will depend on the preferences of the client, who can rely on professionals such as mortgage brokers, mortgage advisors or personal managers, depending on the constitution of their needs.
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