Payment of the purchase price from existing funds? Mortgage with the local bank or a bank in Spain? The options in Mallorca are many and varied.
Mallorca is a popular destination for real estate investments and the purchase of vacation homes. But what is the best way for foreigners to finance their dream home on the island? Once you have found your personal real estate dream, it's all about the finances. In this article, you will find information on various financing options, the current interest rate situation and the impact of Euribor on financing your property in Mallorca.
Financing – here or there…▶ Financing with own funds
The easiest and most cost-effective way to buy a property in Mallorca is to finance it with your own funds. However, this option is not feasible for many buyers.
▶ Financing via a bank in the home country
One option is financing via a bank in your own country. Germans, Austrians and Swiss can benefit from favorable interest rates for annuity loans (around 1.5%). However, many banks in the home countries are reluctant to finance foreign real estate, as it is difficult to value the property from a distance. It is definitely worth talking to them. Perhaps you already have a mortgage for a property in your home country, or you can offer your existing home as security.
▶ Financing via a bank in Mallorca
Another option is financing via a Spanish bank. Here, too, many banks now offer fixed-rate mortgages. However, the financing model usually consists of a basic interest rate and an additional variable interest rate based on Euribor. When Euribor interest rates are low, the mortgage charges are low. However, if the Euribor rises, the monthly installments also increase. One advantage of this flexible financing model is the possibility of unscheduled repayments, which can be used at any time to reduce the interest burden. In the first five years, a 0.5% fee is charged on the unscheduled repayment amount, thereafter only 0.25%.
New rules for mortgages have been in force in Spain since June 2019, which increase consumer protection for bank customers. Mortgage borrowers no longer have to pay the fees and taxes incurred when purchasing a property, but many banks have increased their own fees and interest rates in order to pass on the costs they now incur to the customer. The mortgage holder must continue to pay the property valuation (Tasación) required by the bank.Improved exchange of information
and flexibility with insurance
The mortgage reform has also improved the information obligations of banks and notaries. Banks 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 of the notary's work may not be charged to the buyer.
Mortgagees are also 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, which increases competition and can lead to more favorable conditions for buyers. Financing a property in Mallorca is possible through banks in your home country as well as through Spanish banks. The current interest rate situation and the effects of the Euribor play an important role in the choice of financing method. It is advisable to inform yourself in detail about the various options and weigh up the advantages and disadvantages of each. The mortgage reform in Spain has contributed to improved transparency and consumer protection, which makes buying property in Mallorca easier and more attractive for foreigners.
