What is a binding offer in a mortgage?
The binding offer is a key document that you will receive when applying for a mortgage. This document formalizes all the conditions of the mortgage loan that you are about to sign. Unlike an information brochure, the binding offer obliges the financial institution to maintain the agreed conditions, allowing the client to review them before the official signature at the notary's office.
When is the binding offer delivered?
The binding offer is provided after the property has been appraised and the applicant's financial conditions have been analysed, but before the mortgage is formalised. Its main purpose is to give the borrower time to study and compare the loan conditions. The binding offer is valid for a minimum of 14 calendar days, which gives a margin to evaluate other options if necessary.
Is the delivery of the binding offer mandatory?
Legislation has evolved regarding the obligation to deliver the binding offer. Previously, the Ministerial Order of 1994 required banks to deliver this document three days before the signing at the notary's office for mortgages of less than 150,253.03 euros. However, with Law 41/2007 and Order EHA/2899/2011, this obligation disappeared. Despite this, as a client, you have the right to request it, and many entities offer it regularly for greater transparency.
H2: Key information contained in the binding offer
This document includes all the relevant details about the mortgage loan. Some of the key aspects that must appear in the binding offer are:
• Loan amount : Amount granted by the bank.
• Appraisal value of the property : Official valuation of the property that supports the loan.
• Loan-to-value ratio : The ratio of the loan amount to the value of the home.
• Repayment period : Total time to repay the loan.
• Number of installments and their amount : Number of monthly payments and their value.
• Interest rate : Fixed or variable, and if variable, how it will be revised.
• Commissions and other expenses : Opening, cancellation, early repayment fees, as well as additional expenses (appraisal, taxes, etc.).
• APR (Annual Percentage Rate) : Reflects the total cost of the loan, including fees and charges.
• Warnings and risks : Consequences of default and potential risks of the loan.
Why is a binding offer important?
The binding offer is essential because it reflects the conditions under which the mortgage deed will be signed. This document allows the client to review all the conditions of the loan in detail, and if something is not clear or does not seem favorable, changes can be requested before signing before a notary. In addition, it provides protection to the client, as the entity is obliged to maintain the conditions during the 14-day validity period.
Validity of the binding offer
The binding offer is valid for 14 calendar days from its delivery. During this time, the conditions offered by the entity remain in effect. If you do not accept the offer within this period, the entity may modify the conditions initially proposed. It is recommended that you review the document carefully and make a decision before it expires.
The binding offer is an essential document in the process of taking out a mortgage, as it provides clarity and transparency about the conditions of the loan. Although financial institutions are not obliged to provide it, you can and should request it to ensure that all the conditions are clearly defined before signing. Reviewing this document calmly will allow you to make an informed decision and avoid unpleasant surprises in the future.