A mortgage is a loan to finance the purchase of a home and for most households in Spain it will mean the largest debt they will assume throughout their lives. Therefore, it is important to know all the details of the mortgage loan that we are signing. When contracting this type of financial credit, among other issues, the amount of the debt, the maturity period and the interest rate must be taken into account.
Banks offer mortgages at a fixed interest rate, at a variable or mixed interest rate. In the first case, the agreed interest is constant, that is, if you set a percentage that is maintained until the mortgage is paid off. In the case of variable mortgages, the interest rate changes according to an agreed reference index, to which a differential is added. But it is also possible to mix both formulas in a mixed mortgage.
The most common reference index is the 12-month Euribor, which is currently continuing its climb. Specifically, its daily rate is close to 4%, while its monthly average is close to 3.9%. This index began to take off in 2022 after years in the negative, with a direct consequence for those mortgaged at a variable interest rate. However, mortgage holders also have to take the spread into account.
What is the differential of a mortgage?
The differential of a mortgage is a percentage that is added to the value of the reference index at the time of the review to calculate the final fixed interest rate that the holders of the loan will pay. For example, when faced with a mortgage offer at an interest rate of Euribor plus 1%, that percentage is the differential.
The higher it is, the more interest you will have to pay, so it is advisable to try to contract the lowest possible differential. However, this is not always the case, it depends on the economic conditions of the holders who are going to contract the mortgage and, on many occasions, the banks also require contracting linked products to lower that differential.
Can the differential of a mortgage be changed?
This percentage is fixed when contracting the mortgage and will not be modified while that contract is in force. However, it is always possible to modify the agreed conditions through novation or subrogation. The novation entails renegotiating with the same bank the characteristics of the mortgage, among them the differential applied to the reference index. For their part, in subrogation, the holders resort to another entity -they move the borrower’s mortgage- to improve the conditions of the loan.
The agreed differential will be applied at the time of review of the mortgage. Specifically, the mortgage review will normally take place every six months or every year. The periodicity of the review of what was agreed in the mortgage contract. Thus, when it comes to that review, the bank will take the value of the reference index as a reference and the agreed differential will be added to it to set the interest that the mortgage holders will pay until the next review.
The average for the month of April stood at 3.757% from 3.647% the previous month, according to data from the Bank of Spain. If we take the data for the month of April as an example, for a loan of 100,000 euros at a rate referenced to Euribor plus a differential of 1%, the applicable interest rate will be 4.757%. According to data from the OCU, if, for example, the pending term is 15 years, the mortgaged will go from paying a fee of 599 to 778 euros each month.