The variable mortgage is a loan that is part of the instruments used by users to access a property, such as a home. Because of its usefulness, it is common to notice many people requesting this type of financing to guarantee the fulfillment of a purchase commitment.
In view of its importance, in the following lines we will tell you some relevant aspects of the subject, such as what it is, types of interest applied and its main characteristics.
Variable mortgage: What is it?
A variable mortgage is one in which you must make a monetary contribution that changes according to a reference indicator. Regarding the latter, the most common is the Euribor (Euro InterBank Offered Rate or European Interbank Offered Rate).
The installments to be paid may increase or decrease according to the benchmark used. For this reason, from time to time financial institutions usually modify the interest rate according to what is established in the contract.
Importance of a variable mortgage loan
With the help of this type of loan, an asset can be encumbered in order for you to meet your payment obligations. However, when applying for this type of loan, you will offer the property to be purchased as collateral.
It is important to understand that whoever receives the money acquires the obligation, thanks to the signing of a contract, to repay 100% of the loan plus an interest rate. All of this is done within a set time frame.
In the event that you do not comply with your contractual responsibilities, the creditor, who is usually a financial institution, may foreclose; that is to say, it will collect its debt by following the terms of the contract as collateral. This will only apply for non-payments of three or more installments.
Interest on a variable mortgage
There are two interest rates that apply to these financial instruments of this class, and these are as follows:
TAE. Refers to the “Annual Percentage Rate” and is the actual value to be paid for the amount borrowed.
TIN. Refers to the “Nominal Interest Rate” and is an unchanging percentage that you must pay in installments and is applied to the amount borrowed.
As you can see, each interest rate will result in a value that will help you determine what you will pay for the borrowed money. However, each one has different conditions.
Key aspects of an adjustable rate mortgage
There are some features that are part of mortgage loans of this type. The most important are the following:
- Establishment of an interest rate combining a fixed and a fluctuating percentage.
- The interest rate to be paid is updated from time to time.
- Offering lower fees compared to a fixed-rate loan.
- Modification of the amount of the quota in the period determined in the contract.
- Possibility of establishing lower installments thanks to established payment limits.
In addition to this, mortgages of this type are especially designed for long terms, such as those established in a maximum period of 30 years; although, sometimes, it can go up to 35 or 40.
In summary, now that you know more about a mortgage of this kind and if you want to acquire this commitment to buy a property, it is best to seek timely advice from a lawyer. In this way, you will avoid some problems that can lead to non-payment or invalidation of contract provisions.