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Interest-only mortgages have a large part to play for the financially astute client.
As with any other Spanish mortgage, you need to pick the mortgage most suited to you and your situation, the right product giving you control over your finances.
After all, what causes stress?... Lack of control!
So, let's take a look at some of the differences between interest-only mortgages and the more common capital repayment type of mortgage.
We'll consider who interest-only mortgages could be suitable for, some of their possible drawbacks, and we'll take a look at the interest-only mortgage market in Spain.
interest-only mortgages explained along with drawbacks
First of all, what exactly is an interest-only mortgage?...
Basically, the borrower pays off only the interest and not the capital of the sum borrowed, thereby offering a cheaper way to purchase your property than with a repayment mortgage.
This means that, at the end of your mortgage term, you'll have paid off the interest, but none of the original capital you borrowed.
Consequently, interest-only mortgages were often combined with another investment vehicle - such as endowment policies, ISAs, or other investment funds - designed to pay off the capital borrowed.
Now that I've explained the basics of an interest-only mortgage, I think you'll be able to work out for yourself the main drawback ... will you have enough funds to pay off the capital sum you borrowed?
For this reason, if you're not terribly good with money, a repayment mortgage is your best option, for you're forced to pay off the debt.
Having said that, many people with repayment mortgages end up no better off for, as soon as they get equity in the property, they just go out and borrow some more!
spanish interest only mortgages - suitable clients
So, who would an interest-only mortgage be suitable for?
One thing's for sure, though, interest-only mortgages should always be carefully discussed with a qualified financial adviser or mortgage broker.
current spanish interest only mortgages
So, how about Spanish interest only mortgages?...
Non-Residents
Very few banks in Spain will allow an interest-only mortgage to non-residents and, those that do, limit the period to 5 years.
At the end of that period, you'd need to revert to a repayment mortgage.
Depending on your situation, this is a very good option, and should not be dismissed just because banks/lenders don't seem to like it.
Having said that, I believe you should only take out an interest-only mortgage after discussing the period after the 5 years in detail.
This discussion should be with a qualified financial adviser, or with a mortgage broker, not the bank manager.
When I say this, I mean no disrespect to Spanish bank managers but, as far as I know, they don't possess the necessary qualifications regarding financial advice.
Residents
For residents, long-term interest-only mortgages are only available through online banking.
If you'd like more information about interest-only mortgages, please feel free to fill in the simple form you'll find at the end of this page - you'll get the best Spanish mortgage help going.
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