Mortgage

A mortgage is a type of real right that puts a lien on a property. A mortgage is typically used to obtain the financing needed to purchase the property, although other types of assets besides real estate can also be mortgaged. Mortgages are recorded in the Property Register. Mortgage loan is another synonymous term.

In most mortgages the borrowers take on a joint personal obligation and a mortgage guarantee is required as collateral (in other words, the applicant's economic resources). The home itself also becomes collateral for the loan.

There are three main types of mortgages, depending upon their type of interest rate:

• Variable-rate mortgage: The interest rate consists of a reference rate, which in Spain is typically the euribor, plus a fixed margin. In this type of mortgage the interest rate will be revised, typically every 6 months, to reflect changes in the reference index. This means that the monthly installment payment due will become higher when the euribor goes up and lower when it goes down.
• Fixed-rate mortgage: In this case neither the amount of the monthly payment nor the interest rate change at all during the entire life of the loan. The same amount will be paid every month, regardless of whether market interest rates go up or down. Compared to variable-rate mortgages, the interest rates borrowers must pay for fixed-rate mortgages tend to be higher and the loans usually have a shorter payback period.
• Mixed-rate mortgage: The interest rate is fixed during part of the loan's payback period and variable during the other part.

What is a mortgage?