What is a mixed mortgage

In-depth analysis of mixed mortgages: Everything you need to know
A mixed mortgage loan is a type of mortgage that combines a fixed monthly interest rate for the first years of the loan with a variable interest rate for the remaining years of the loan until the date of maturity. During the years in which the mortgage is agreed at a fixed interest rate, the monthly payment will always be the same. For the remaining time, an interest rate made up of a fixed differential added to a reference rate (the most common one is the Euribor) will apply, so the monthly payments will go up or down as the interest rate is updated (usually every six months). In practical terms, this type of mortgage works as a variable-rate mortgage with certain special conditions.
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Interest rate

An example of a mixed mortgage loan would be one paid over 30 years, in which a fixed rate is applied for the first 10 years (the monthly payment does not change) and a variable interest rate based on the Euribor is applied for the last 20 years.

What is a mortgage?

A mortgage is a right that links the ownership of an asset in order to guarantee the fulfillment of an obligation. When applying for a loan at a bank, the bank may require the setting up of a mortgage. This, then, is a mortgage loan, usually referred to as a “mortgage”. The aim of a mortgage application is usually to finance the purchase of a house, with the property itself as the guarantee.

The borrower (who receives the money) commits, when signing the contract, to returning the amount lent plus the amount corresponding to interest, in monthly repayments and over a specific period of time. In all mortgage loans there is the personal guarantee of the borrowers and the guarantee of the property. This means that if the borrower does not keep up to date with the repayment of the debt, the credit institution may repossess the home.

Types of mortgage loans

Depending on the interest rate that is applied to the mortgage, three main types of mortgage can be distinguished:

- Variable-rate mortgage.

- Fixed-rate mortgage.

- Mixed mortgage.

A mixed mortgage combines a fixed mortgage and a variable mortgage (although in reality it is basically variable). During the first years of the term of the loan, the interest rate based on the operation of the fixed mortgage is applied, and during the remaining term the interest rate is applied according to the operation of a variable mortgage. In order to fully understand the operation of a mixed mortgage, it is necessary to know the details of these other two types of mortgages.

A fixed-rate mortgage is a type of mortgage loan in which the same interest rate is applied for the life of the loan. The interest rate is not subject to any reference rate (Euribor). Therefore, the interest rate does not vary and the monthly payment is always the same throughout the life of the mortgage, even if market interest rates go up or down.

A variable-rate mortgage is a mortgage loan in which monthly payments increase or decrease according to the reference rate (which typically is the Euribor). The interest rate applied to the mortgage consists of the Euribor rate plus a fixed differential. This means that when the Euribor goes up, the monthly payment increases, and whenever it goes down, the amount of the monthly payment will also do so. The update of the amount of the monthly installments is usually agreed every six months using the latest value of the Euribor. This way, the same installment amount is paid for six months until it is revised.

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Interest rate

The interest rate that applies to a loan is represented by the NIR and the APR.

NIR (Nominal Interest Rate): a fixed percentage applied to the amount borrowed which determines the monthly payment due to the financial institution. It does not reflect the expenses and fees of the loan. In a fixed mortgage, the NIR does not vary throughout the life of the loan. In a variable mortgage, the NIR is made up of the value of the Euribor plus a fixed differential, which means that its value goes up or down depending on the Euribor.

APR (Annual Percentage Rate): interest rate that indicates the actual cost or yield of a financial product. The APR is calculated based on a standardized mathematical formula that takes into consideration the nominal interest rate of the operation, the frequency of payments (monthly, quarterly, etc.), the bank fees and some operation expenses. The APR serves to compare different mortgage offers among different banks.

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