Maybe you have already found your dream Mallorca home and want to know how to finance the purchase. Mortgage interest rates are at a historic low and there are a few attractive options available to finance the purchase for international buyers.
Jana Fodor, Director Commercial Real Estate & Finance at Engel & Voelkers Mallorca, has prepared the following Top 10 borrowing tips for Spanish mortgages for you:
1. Time frame
The mortgage process can easily take longer than expected, so it is best to start very early. If there are no unpredicted delays, the process will normally take around 4-6 weeks from the time the bank will get the full documentation required.
2. Maximum borrowing
The maximum mortgage for someone not living in Spain (paying Spanish taxes) would be 70% of the property value.
3. Buying costs
Around 12% of the purchase price should be calculated for fees and taxes.
Banks typically lend around 1/3 of the net monthly income and that has to be enough to cover existing debts plus the new Spanish mortgage payment.
5. Spanish or International lender
The lender does not necessarily have to be a Spanish bank. There are banks outside of Spain that offer lending on Spanish properties.
When taking out a mortgage, the banks do their own due diligence with the legalities and insist a valuation is carried out from a company approved by the Bank of Spain. All the necessary checks will be done so that the property will be correctly registered at the land registry.
7. Leveraging Spanish property
Most Spanish lenders will not allow owners to take a mortgage on their Spanish property at a later stage (after property completion). So, it is important to set up any mortgages required at the time of the initial purchase.
8. Types of mortgages
Spanish banks typically do not offer interest-only mortgages with the exception of development loans. They offer variable and fixed interest rate mortgages on a full repayment basis over an agreed term.
There are some international banks that can offer interest-only mortgages but typically also require assets under management.
9. Wealth tax
Spanish wealth tax applies from Spanish net assets of €700,000 per person. A mortgage can reduce the wealth tax exposure. We recommend a consultation with a tax adviser and can make an introduction to the best advisers on the island.
10. Compare different options
It is best to get offers from different banks as there can be huge differences between banks. Mortgage interest rates can be negotiated with the bank! We are happy to help with an introduction to a bank!
For any questions, please contact Jana Fodor, Director Commercial Real Estate & Finance at Engel & Voelkers Mallorca.