The average mortgage repayment period in Spain is 22 years, according to the latest data from the National Institute of Statistics, a time in which many things can happen that make it necessary to change residence. The arrival of children in the family is one of the most common reasons for looking for a new, better and larger residence, but what do we do if we have not yet paid off the first loan?
If you need to move to a more spacious property or one that is located in an area with better services for raising your children (daycare, medical centers, parks, etc.), you have several options available to you, even if you have not finished paying off the mortgage on your first home.
An alternative would be to rent out the old property, so that you can cover the payments on the first mortgage with the rent and take out another mortgage for the new house. Another possibility is to rent –preferably with an option to buy– a new property while you manage to sell the old property. A third option is to take out a mortgage to exchange your home or a bridging mortgage . At Hipotecas.com we tell you what this is.
What is the House Exchange Mortgage?
This is a loan granted that unifies two mortgages : the one on the old home, on which the loan has not yet been fully paid, and the mortgage you need to buy your new home or it can be arranged in a single loan (mortgaging both homes).
The key to this type of mortgage is to sell your first home within a period that normally ranges between two and five years.
How this mortgage modality works
The main feature of the Cambio de Casa mortgage is the flexibility of the payments depending on the client's situation . In this way, you can provisionally have two mortgaged homes with a lower payment than you would have if you had taken out two mortgage loans separately.
In addition, as a mortgage holder, you will be able to negotiate different options with the financial institution to pay off the loan:
- Installment with grace period on the principal: in this case, you will only have to pay, during the agreed term, the interest generated by the loan. As a result, the installment will be lower than normal, but you should know that you will not be paying off any of the principal.
- Mixed installment: this involves agreeing to lower monthly installments over the stipulated period. Here, you will be paying both interest and capital, but you must take into account a lower amortization.
- Fixed rate: the interest and capital are repaid using the French repayment system, the most widely used in mortgage loans.
What happens if you are unable to sell the old property? In that case, after the period agreed between the bank and the borrower has passed, you will have to pay the debt on both houses, which would increase the monthly payment considerably.
Pros and cons of a mortgage for a house change
The bridging loan itself is nothing more than another credit option within the financial market, with its advantages and disadvantages.
Among the first, it is worth highlighting as pros :
- Accessibility : thanks to this financial product, many families can change homes, even if they have not finished paying the first mortgage or sold the home.
- Flexibility : the amount and type of installments, as well as the deadline for selling the first home, are negotiated by the parties, so it is possible to obtain advantageous conditions that adapt to your personal circumstances.
- Margin : a bridging loan allows you to enjoy a longer period of time to sell your first home, so you will not be faced with the difficulty of accepting a price below market value.
And what are the disadvantages of a bridging loan? When choosing this option, we recommend that you take into account the following disadvantages to avoid unpleasant surprises:
- Risk : the bridging mortgage payment, although not equivalent to the sum of the two mortgages, will be somewhat higher than that of a single mortgage, which will therefore entail a greater financial effort.
- Requirements : As a result of this risk, financial institutions are strengthening the requirements for granting bridging loans.
- Increased monthly payments: If you have not managed to sell your first home after the agreed deadline, you will have to pay a much higher monthly payment.
- Loss of value: Although the sales period is very advantageous, it should not be forgotten that the market may go down and you may have to sell for an amount that does not cover the capital owed.