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They may be commonplace in the UK, but interest-only mortgages in Spain are surprisingly hard to find.
You have to remember that the mortgage market here in Spain is years behind the markets in the UK and US (maybe not a bad thing!). Up until recently, there were no interest-only mortgages in Spain, and even now, if you mention a fixed rate option to banks in Spain, the advisers look at you like you have landed from Mars.
The Spanish tradition is to take a standard repayment mortgage and to pay off your debt over the term of the loan – not a bad idea as it goes! But during turbulent financial times, customers are understandably trying to secure more flexible products.
It seems to me that people still want to buy Spanish properties, particularly while prices are falling through the floor and interest rates are at an all-time low (euribor is currently around 1.7%), but most people are also fearful about their job security.
The solution for most would be to retain access to a lump sum of cash in the event of unemployment or other economically-driven woes, to borrow as much of the purchase price as possible, and to reduce their monthly mortgage repayments, at least until we have emerged from the other side of this crisis.
The ideal product for this scenario is a Spanish interest-only mortgage to cover as much of the purchase price as possible.
Most interest-only mortgages in Spain are only available with a loan to valuation ratio of between 60% and 70%. Some banks will lend a similar percentage of the purchase price, particularly in the case of an inflated valuation.
Spanish banks will also load the interest rate for an interest-only mortgage, so while most Spanish repayment mortgages attract a rate of around 1% over euribor (equating to around 2.7%), you can expect to pay anything between 1.2% and 1.5% above euribor (around 3% to 3.5%) for an interest-only option.
But also beware that most interest-only options will only last for a fixed opening term (usually between 2 years and 10 years), and that some banks will have a minimum rate that they will charge, often around 3.5%, making some of these ´great rates´ redundant.
Check the small print!
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