Buying a home is a complex task that requires many complicated and unforeseeable decisions. It is difficult to find key ones that can play a decisive role in future home purchases. One of the important questions is how to choose a mortgage: where to get it, which one and on what terms.
Traditionally, in Spain, as in most world real estate markets, there are two main types of mortgages: fixed and floating-rate loans. However, another type of loan is becoming popular. This is the so-called mixed mortgage.
How do "mixed mortgages" work?
A fixed-rate mortgage allows buyers to pay the same monthly loan amount for years and decades. Floating-rate mortgages measure repayments according to indices such as Euribor, which can lead to monthly fluctuations based on the economic situation.
With a mixed-rate mortgage, the recipient pays a fixed monthly amount for an initial period of 5 to 15 years (depending on the lender bank). After that, the customer pays at a floating rate linked to Euribor.
Why has this financial instrument returned to Spain?
This tool is not something new for the Spanish economy. It existed in the past, but it is the economic crises that make such options so popular. Recently, many companies have started offering mixed mortgages. Openbank, Bankinter, Caja de Ingenieros, EVO Banco, ING, Cajasiete, Banco Santander, Caja Rural de Granada, Ibercaja, Cajaviva, Targobank, Hipotecas.com, UCI, Banca Pueyo and Triodos Ban are the largest.
The benefit of such a loan is the ability to plan combined with long-term speculation. In an economically unstable period, people can take out a loan for a long time, and they will be able to pay a fixed price that will not fluctuate from negative trends in the economy, including crises. However, when the economy stabilizes, for example, within 5 years, borrowers will choose a floating rate and benefit from the economic recovery.
The HelpMyCash financial product comparison program demonstrates the growing popularity of mixed mortgages. In November 2022, about 24% of open loans at iAhorro were mixed. This figure rose to 35.7% in December. In 2023, According to the comparator's forecasts, every fifth mortgage borrower will have an open mixed mortgage in 2023.
Advantages and disadvantages of a "mixed mortgage"
Being mixed, this type of mortgage has both advantages and disadvantages of both mortgage options. As one of the most obvious examples, the mixed type is more reliable than the floating-rate option, as the beneficiary is protected from market fluctuations for a long initial period. However, it has a drawback: the client will not benefit if the index falls while it is in the fixed-rate period. Given that the market is uncertain and prone to either recession or stagnation, fixed terms of more than 2-3 years can play a cruel joke with borrowers.