Most real estate transactions in Mallorca are financed in whole or in part by banks. New rules for mortgages have been in force in Spain since June 2019.
At the end of the day, every deal is about one thing: good money. But what is the best way for foreigners to finance their Mallorca home?
Financing with your own funds from your private coffers causes the fewest problems. This saves interest, costs and taxes and also speeds up the entire purchase process. However, the majority of house purchases on the island are fully or partially financed with a mortgage - not least for tax reasons.
Financing via a bank in the home country
Germans, Austrians and Swiss can finance their island home via a financial institution in their home country. German investors in particular have an advantage here, as annuity loans with ten-year fixed interest rates are currently being offered by banks, savings banks and building societies at very favorable interest rates (around 1.5 percent). The problem: Many banks at home do not approve of financing foreign properties, as it is quite difficult to value the property from a distance.
Nevertheless, anyone who already has a mortgage with their bank for a property in their home country should first clarify the possibilities of financing there. The same applies to solvent and long-standing bank customers who can offer their home in their home country as security.
Financing via a bank in Mallorca
Spanish banks now also offer their customers fixed-rate mortgages. However, a different financing model is common: this consists of a basic interest rate and an additional variable interest rate based on Euribor. If the Euribor interest rate is very low, as is currently the case, the mortgage burden is low. However, if the Euribor rises, the monthly mortgage installments also increase. Nevertheless, this „flexible“ financing model for mortgages offers a decisive advantage: the loan can be paid off early at any time with special repayments. If you inherit money, for example, you can reduce the interest charge at any time. The bank collects 0.5 percent on the special repayment amount for these early repayments in the first five years, after which it is only 0.25 percent.
Mortgage reform
In order to increase consumer protection for bank customers, a mortgage reform came into force across Spain in June 2019. Thanks to this reform, mortgage borrowers no longer have to pay the fees and taxes incurred when purchasing a property. However, this has meant that many banks have increased their own fees and interest rates in order to pass on the fees they now have to pay to the customer. It is important to note that the mortgage holder must continue to pay the mortgage protection prescribed by the bank (Tasación) in any case.
Another new requirement is that the bank must provide all information about the financing contract at least ten days before the scheduled notary appointment. The notary is then obliged to check the documents and advise the buyer. The costs for the notary's associated workload may not be charged to the buyer. In addition, mortgagees are no longer obliged to take out the life insurance policies required for a financing contract with the banks. These policies can also be taken out with other insurance companies.
Andreas John
