When contracting a mortgage, it is necessary to assess the repayment term that is most convenient: short-term or long-term “How many years should I ask for the mortgage?” It is one of the most frequently asked questions of those who are going to sign a mortgage. Before responding, it is important to analyze in detail the economic situation of the future owner and the conditions of the mortgage loan to calculate whether it is better to contract a short-term or long-term mortgage. According to data from the Real Estate Registry Statistics (ERI) of the Association of Property and Mercantile Registrars of Spain, the average duration of a mortgage in Spain is 23 years and seven months.
The Bank of Spain establishes 30 years as the maximum recommended term to sign a mortgage. The repayment term directly influences the amount of the monthly installments paid for the mortgage. In this sense, it is advisable not to allocate more than 30% of the total income to pay the monthly mortgage payment. It should also be borne in mind that banks grant loans of up to 80% of the purchase or appraisal value of the property. Therefore, the future owner must have saved the remaining 20%, in addition to between 10% and 15% to cover the expenses associated with the sale (taxes, notary, Land Registry, etc.).
What repayment term to choose?
In order to decide which repayment term is best suited to the buyer’s profile, they must carry out an analysis of their economic solvency and their debt capacity, including short-, medium-, and long-term job prospects, expected income and expenses. and other loans to face. If the monthly payment exceeds the recommended 30%, the best thing to do is apply for a long-term mortgage, in order to take less risk and be able to count on a lower monthly payment.
In addition to financial solvency, another aspect that banks take into account when granting a mortgage is age, since it is a long-term investment. The older the applicant, the shorter the repayment term and, therefore, the higher the monthly installments that must be paid. In Spain, banks usually set the maximum age that the holder can have at the time of finishing paying the loan at 75 years. With a practical example, a person who buys a home at the age of 60 can access, at most, a repayment term of 15 years.
Which mortgage is best for me?
SHORT-TERM MORTGAGES
Short-term mortgages are those in which a repayment period is established that does not exceed 15 years. The debt is resolved in less time and the fewer years you are paying, the less interest you will have to pay. However, shortening this period in excess can imply a very high monthly financial burden, since a greater amount is paid in each installment. This modality is appropriate for people with high and stable income.
LONG-TERM MORTGAGES
Long-term mortgages are those in which there is a repayment period of more than 15 years. In long-term mortgages, it takes longer to pay off the debt, but the amount to be paid in each installment is smaller. In this way, you can have greater financial availability to meet other needs, such as paying other loans, saving or investing. The main drawback of this type of mortgage is that by paying interest for a longer time for the same amount, the total disbursed for the loan is higher. In any case, throughout the mortgage contract it is possible to change the repayment period through early repayment. In this way, the loan can be repaid sooner, either by reducing the installments or the term.
