Cap and Collar Limits on Mortgages?

Hi all!

I registered for this site just to post this question -

Are there such a thing as caps on Spanish mortgages so that the EURIBOR doesn't raise to 10% in the future and you are stuck paying EURIBOR + (your banks interest rate) lets say 3% for a total of 13%. We are all fine when the EURIBOR is between 2 and 4% (or less) but are there defined limits to a maximum interest rate?

If so, is this over the life of a loan, or can they change the terms later? Does ANYONE have this in their contract or do we all just have faith that the EURIBOR won't raise to that ridiculous level?

Some advice would be helpful!!

Thanks in advance, its greatly appreciated!!

Hi sinacism,

As far as im aware the Eurobor is a rate set by the banks and there is no limit as to how hight it can get. 

I know it is scary as my mortgage also works this way, i went from paying and initial payment of X. then it increased by €200 more per month and now im paying €150 than the initial payment due to the changes of the Euribor. All this in 3 years.

Joan

Hi Sinacism.

The short answer is no. I am afraid the mortgage lending market is very unsophisticated in Spain. Spanish lenders are very traditional and the majority, still, offer Repayment mortgages based on the Euribor or IRPH indices. 'Interest Only' was only introduced to Spain some 7 years or so ago but retain the link to the above indices.

The best that you can do to peg your rate is to look for a Fixed Rate for as long a term as possible. 10 years is the present maximum and the rate circa 5%. That is a premium of circa 2% of the majority of other mortgages, Euribor linked, where the pay rate will be 3% ish for new business but perhaps up to 4% for existing borrowers (penalty due to the lag of the annual Review system). The current 12 month Euribor rate satnds at 1.45% and falling but with increased bank margins (to assist their cash flow, of course) the pay rate pushes up to that 3% mark.

Hope that helps!

Hi Sinacism,

Regardless of how the Euribor performs, A lot of banks do actually have a cap on the rate and this is uaually set  at 12%.  If your lender has this condition then it will be reflected in your mortgage deed and it is for the life of the loan.  Equally a lot of lenders have collars, again will be reflected in the mortgage deed.  There has been a lot of awareness about collars this year as the Euribor has fallen but lenders have not passed on those drop in rates, due to their collar condition!    Best mortgage rate at the moment is under 2% (including margin), cap rate at 12% and no collar!

Thank you everyone and Sharonw - thats exactly what I'm finding out after talking to a few banks.

They kind of chuckle when I ask about a fixed rate interest - its so unheard of and so few banks do it now that they say those that do, its so expensive that its really not worth it. Some banks have offered to extend the time period of revaluation to reassess the % interest rate from yearly to every 3 years, but still not do a fixed rate....

12% seems to be the standard "cap" but they also say vaguely "Well, we won't charge you more interest than we do on personal loans" which isn't much help as they mean credit cards and so on that can charge over 25% interest!!!

I've talked to 2 banks over a period of time and the going rate now seems to be no floor/collar - basically the collar is their own interest rate - say the EURIBOR is at 0% (near impossible but whatever) and the banks interest rate is 2% - well the "collar" would be 2% and couldn't fall below the bank's own rate....

It just seems like a lot to leave up to the markets, on both side of the fence, and a lot of trust is needed, which in this day and age, trust in the system and banks is falling rapidly!!!

Thanks again everyone!! :)

Hi again Sinacism,   glad the responses helped!   It is true that Fixed rate products are very few and far between.  The best I know of is currently at 4.25% Fixed for up to 3 years, on Repayment basis.