Financing the purchase of a home with a mortgage does not only involve paying your mortgage instalment regularly, which can be broken down into the repayment and added interest.
There are also other expenses that must be taken into account, which until recently were almost always passed on to the client. After hundreds and hundreds of hours in court with judges ruling in favour of both parties, the Supreme Court ruled that in Mallorca, Menorca and Ibiza, as the rest of Spain, costs related to mortgages must now be laid out clearly when beginning the process, as well as increasing the responsibilities of the banks.
In any case, recognising and understanding these costs is essential to make an accurate financial analysis of your mortgage and also to protect your rights.
Opening Charges/Fees/Commission
The opening commission, which must be a one off payment as determined by Law 5/2019 regulating real estate credit contracts, must be paid by the client. The Supreme Court has ruled that it is not an abusive clause and that it forms part of the price of a mortgage. It is important that we do not forget that this is optional, there are many entities that do not apply it and therefore can lead to significant savings. In any case, the existence of this opening commission must be made known in advance to the client.
Notary
The Supreme Court ruled in January to distribute between both parties the cost because it considered that this undertaking is the interest of both sides, but the Law regulating real estate credit contracts ended up ruling that the notarial fee for the mortgage loan deed must be paid by the bank. The cost will depend on the costs of the amount of paperwork related to the mortgage and the property, and its cost usually ranges between 400 and 600 euros.
But also points out that whoever wants a copy of the deed must pay the entirety of this copy, so that financial institution and client will pay each for their copy which is between 90 and 120 euros on average.
Administration
Although the Supreme Court ruled on a split cost between the parties, Law 5/2019 provides that the costs of the administration agency shall be paid by the lender. Its cost for a mortgage of 200,000 euros is around 400 euros.
Registration fees
The Supreme Court noted that a mortgage guarantee is registered in favor of the financial institution/lender and therefore they are the one that has to pay all costs arising from the registration of the mortgage in the Land Registry, as also confirmed by the new Mortgage Law. This cost is about 400 euros.
The opposite happens when cancelling the registration when the debt is paid in full. The party interested in the property appearing as “free of charge” is the home owner and therefore is the one who has to take on this expense.
Documenting legal acts
This tax represents the highest amount of the mortgage expenses, which depending on the province can account between half and two thirds of the expenses. For our example of a mortgage of 200,000 euros is about 4,000-4,800 euros. In this case,
Law 5/2019 states that: “The payment of the transfer tax and documented legal acts will be made in accordance with the provisions of the applicable tax regulations,” so we refer to the law approved by the Government that determined that this tax previously paid by customers is now paid by the bank.
Appraisal
The Supreme Court did not rule on who should pay this expense, so we are governed by what is stated in the current mortgage law, Law 5/2019. This determines in Article 13 that “the properties provided as collateral must be subject to an appropriate valuation before the conclusion of the loan contract” so it is mandatory to have your property correctly valued before proceeding. When determining the cost, Article 14 of this Act on transparency rules in the marketing of real estate loans states that correspond to the home owner/borrower.
Do not forget that you are completely free to choose the appraiser, as long as it is approved by the Bank of Spain, and its cost, which is freely determined by each company, usually varies between 200 and 300 euros.
All in all, when applying for a mortgage in Mallorca, Menorca and Ibiza, Spain or anywhere in the world, it’s important to do your homework first, or have some do it for you!
Should you require any assistance or legal counsel concerning properties, purchases and sales on the islands of Mallorca, Menorca and Ibiza, please contact us at your convenience at info@mallorcasolicitors.co.uk or by phone on the numbers listed on our contact page.
