Low-interest rates accelerate the amortization of mortgages
Spanish households are taking advantage of low-interest rates to de- borrow: in the absence of savings performance, with deposits that offer less than 0.5%, and the volatility of the stock market, they are allocating the inactive balances in their current accounts to be amortized in advance their mortgages.
Lorena Mullor, manager of the Mortgage Association of Spain (AHE), explains that currently, the average term of amortization of a mortgage by families is 13 years, compared to 17.8 years which is the average duration of the mortgage portfolio of the financial entities. “Before, in the years of the real estate boom, mortgages were amortized early before their due date because the mortgaged sold their home to buy another. In recent years, however, what predominates is partial amortization “. The AHE collects data from the mortgage portfolio of 12 financial entities, whose balance represents 94% of the mortgages granted in Spain.
According to the data of the Bank of Spain, the mortgage debt of the families ascended at the end of the first quarter to 521,000 million euros, 25,000 million less than a year before (4.6%), although the bank has increased the concession of mortgages by 24% in the first semester with respect to the previous year.
The continued decline in the bank’s mortgage portfolio is also due to
the predominant amortization system in Spain, known as the “French system”: the payment of interest is concentrated in the first years of the loan’s life tech-dreams.com/how-to-acquire-payday-loans-when-you-might-have-bad-credit, while in the last years concentrates the amortization of capital.
Therefore, says Mullor, “make partial repayments of the mortgage by reducing the outstanding payment term now has greater profitability than any other financial investment. A few years ago, however, although the mortgages were at low rates, there were many offers of investment at high rates and families found it more profitable not to amortize. ”
Changes in the taxation of mortgages have also influenced this equation: the homes acquired after 2013 are no longer entitled to mortgage relief, while in the homes that were purchased in previous years, the maximum tax relief is 1,356 euros per family unit, or double if the individual declaration is chosen. A tax return that is lower than what for many families is the one-year mortgage rate.
“In recent years, families with difficulties have lengthened the repayment period, but that triggers the financial cost. The most effective way to save is to reduce the deadline, not reduce the monthly fee, “explains Mullor.
The accelerated depreciation of mortgages means that currently
homeowners have already paid in full, a percentage that increases to 68.5% in those over 50 years of age, explains Beatriz Toribio, director of studies at Fotocasa. But even in the youngest families, between 30 and 40 years old, 39% have managed to pay the mortgage completely. “A few years ago flats were cheaper and mortgages were granted in shorter terms, and that has also helped,” acknowledges Toribio.
have become one of the engines of the recovery of the real estate market
along with investors. According to a study on the demand for housing made by the Appraisal Society, they are the only group that grows as a plaintiff, while the price increase of the last months is making the purchase less profitable for small investors and unattainable for young people.
At the other extreme, accelerated depreciation has become an added problem for financial institutions, which consider mortgages to families as the safest and most profitable asset: the mortgage delinquency rate has dropped to 8.24%, but it is quite lower for loans granted to families. This has forced the entities to open “a mortgage war” to grant new loans, explains Toribio, accepting mortgages at fixed rates (in 20% of new mortgages) in the environment of 2%. “This, and the rent boom are the biggest structural changes that the Spanish property market has experienced since the crisis,” he says.
Another element of change is that within a few months, if Spain finally manages to form a government, banks will not be able to charge a commission to fully or partially amortize a mortgage from the sixth year onwards: a directive from the European Commission (EC), which The states had to have incorporated their domestic legislation in March, forcing financial institutions to eliminate them. The processing of the law – Thursday ended the deadline for allegations – has nevertheless remained paralyzed
It is due to the lack of government, and its practical application will depend on the development of a regulation for which there is no date either.
The European directive limits the commission in the first three years of life of the loan to 0.50% of the outstanding capital and 0.25% in the first five years, percentages lower than the current ones: the Bank of Spain, in its code of good practices, sets a maximum commission of 1%, for all terms. In anticipation of the new directive, the banks have already lowered the amortization fees applied to the new mortgages, which according to Tecnocasa data are now 0.13% for partial amortization and 0.36% for the total cancellation of the credit.
However, in the mortgages signed in the years of the boom, the penalties are higher and hover around 1%. These commissions, according to the EC, harm consumers and reduce the competition of the European financial market by unjustifiably making the change to another entity unjustified.