Trick or Treat

Be careful with the interest rate of your mortgage!

Do not fall into tricks or traps with the banks and learn with us the different types of mortgages to know which one benefits you the most and which one is the most suitable for you.

If you have never applied for a mortgage or are thinking of doing one, you may not know how it is calculated or the types of mortgages and their differences, but don't worry, from Inmoself we will explain what you need to know.

There are three types of bank interest on your mortgage: fixed, variable or mixed. But before we begin to explain each of these interest rates, we will tell you how interest is calculated.

We have two official values ​​that are established by the Bank of Spain, the TIN [Nominal Interest Rate] and the TAE [Annual Equivalent Rate].

While the TIN or Nominal Interest Rate is the fixed cost agreed with the financial institution as a concept of payment for the borrowed money. The TAE or Equivalent Annual Rate is an annual percentage used to compare the effective cost of two or more loans and includes bank commissions, the term of the operation and the TIN of the credit that we are going to request.

So it can be summed up as:

• TIN: It is the percentage of commission that you are charged for what you ask for (if you ask for €100 and the TIN is 10%, you will have to return €110).

• TAE: It is a rate that you are charged that varies depending on the amount you request, the bank, among other things.

The TAE can be considered the REAL expense since it includes the TIN, the term of the operation, expenses and commissions. In conclusion, if we want to make a financial decision, it is better to look at the TAE.

Now that we understand the bases of bank interest when requesting a mortgage, it is time to explain the types of mortgage interest: fixed, variable or mixed. Understanding these concepts is much simpler than the previous ones since the name itself indicates the most relevant information.

As its name suggests, a fixed-rate mortgage is one that remains the same throughout the life of the loan because it is not based on any reference index that may vary over time. It is a percentage agreed in advance and that does not change, regardless of what happens with interest rates in the market.

A variable bank interest mortgage is the opposite, the payment will vary over the years and to make this calculation the Euribor is taken as the reference index. In other words, if we have already chosen or are going to choose a mortgage with variable interest, the value of the interest will go down if the Euribor index goes down or will go up if it also goes up.

Now, where does all this leave mixed mortgages? If I tell you that it combines the two previous mortgage interest rates, you may not know what we mean. Combine them as follows:

• The fixed bank interest rate is applied for a certain time (agreed in advance).

• After this time, the variable rate is applied (a fixed differential value to which is added the value according to the reference rate, the Euribor in the majority).

In conclusion: If you want to be sure of what you will pay, we recommend a fixed-rate mortgage. If you want to pay less but with risks, we recommend a variable mortgage and if you want something in between, we recommend a mixed mortgage.

You can check your mortgage with our free tool on the website by clicking here: [link]

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