Mortgage Review: How and When it's Done (Complete Guide)

It's crucial to understand why the mortgage review becomes an important process that we need to consider. This process determines how much is to be paid, whether it's more or less, in any given scenario. Therefore, it's essential to understand how this process is conducted.

We've prepared a comprehensive guide that delves into the revisions made to a mortgage. This way, you'll know what to do in any situation that might arise during this process.

What is a mortgage review?

A mortgage review is the process or action taken to update payments in this variable process. In Spain, this process adjusts the interest rate according to what is stipulated in the contract, whether annually or semi-annually. Furthermore, an index, typically Euribor, is used as a reference to make the necessary updates.

During this process, the current reference index is reviewed and compared with the previously applied one. If this index has risen, the cost will too; if the index falls, the monthly payment will also decrease. It's important for mortgage holders to be aware of when this occurs and how they might be affected.

When is a mortgage reviewed?

It's important to know when reviews are conducted, an important detail so it doesn't catch you by surprise. They can be done annually or semi-annually, depending on the contract. This document will contain the established dates for reviews thereafter.

The date of these reviews may coincide with the contract's signing date, so that it is done annually. However, it's also possible that the first day of the calendar month following formalization is used as a reference. In any case, review your document before the Euribor review and making the corresponding adjustments.   

How is a mortgage review conducted?

The mortgage review follows a clear structure and is carried out by the bank. Each variable is processed following an established process to set a new price for the installments. This is done as follows:

1. The process begins on the date established in the contract for the review, whether annual or semi-annual.

2. The Euribor reference index is used to perform the necessary calculations.

3. The interest is recalculated so that the bank adjusts the value based on the index. It may have increased since the last review, but it could also decrease.

4. Finally, the client is notified in writing about the new amount and interest rate.  

Which Euribor is used to review the mortgage?

As already mentioned, for a mortgage in Spain the 12-month Euribor is used. This index indicates the average interbank interest rate among European banks. Its value is published monthly and serves as a reference for making the necessary adjustments when reviewing mortgages.

On the other hand, there is also the 6-month Euribor index for some mortgage contracts. This will help determine what has been agreed upon in the contract between the parties.

Which indicators are taken into account?

When reviewing a mortgage different indicators can be used as a reference. In Spain, there are several, although Euribor is the most common for adjusting installments with the new interest rate. However, the indicators that can be considered are:

1.   Euribor

It is the most widely used index for mortgage revisions in Spain. It shows the average interest rate at which banks within Europe lend money to each other. It can be calculated at 6 months or one year.

2.   IRPH

This is known by its acronym as the Mortgage Loan Reference Index. It is also used for some interest rate calculations in mortgages. It can be considered by entities, banks, or collectively.

3.   Mibor Index

This is the least known, the so-called Madrid Interbank Offered Rate. It was frequently used in the past as a reference for mortgages in Spain.

4.   Others

There are other indicators, that can be taken into account and attached to the contract. This is agreed upon between the bank and the client and can be based on other types of references. Learn about the advantages of a mortgage subrogation during the review

How to calculate a mortgage payment?

There are different ways to perform this calculation; it's important to learn how to do it yourself if you want to double-check. We'll show you some of the available options.

1. Payment calculators

There are simulators that allow you to see how your payments will change. This way, you can better plan your finances and be aware of the changes to your payments.

2. Use Excel tools

Another feasible method is the use of Excel to perform the calculations. This is quite simple, as you'll see. In the column A, create sections for Outstanding Capital, Outstanding Term, Rate, and Payment. For the Column B this data is completed, but the following formula is added to the installment: =-PMT(B3/12;B2*21;B1). This formula is adjusted for semi-annual reviews.

3. Use a formula for the calculation

There is a formula to calculate the monthly amount to be paid after the review. It is as follows:

·   C is the principal borrowed, the total amount of the mortgage loan.

·   i represents the monthly interest rate (%), which is obtained by taking the annual interest rate and dividing it by 12 months.

·   n is the total number of monthly payments to be made over the loan term. The years are multiplied by 12, which is the number of months.

With this, the user will be able to perform the calculation to find out how muchthey will pay monthly after the review. It is recommended to use a financial calculator or a spreadsheet to perform the operation.

How long does it take to review a mortgage?

The mortgage review should not take long, as it is a standard procedure regularly performed by banks. The bank uses its own procedures to perform the calculation from the established date. After this, it will take a few days or weeks until the written notification to the client.

Is it better to pay down your mortgage before or after the review?

This action depends on what is best for the user based on their financial situation. If you have different goals, it's important to consider the following points:

· Paying down before the review will help you avoid interest rate increases, which will reduce the impact of a potential increase in installments. This is due to the reduction of the outstanding principal.

· Paying down earlier will also help you reduce the debt faster, decreasing the total interest on the loan.

· If you pay down later, this will allow you to evaluate whether or not it's advisable to do so at a specific time.

· Furthermore, a later repayment will help you maintain better order according to your financial situation.

As you can see, whether to pay down before or after the review will depend on your current situation. You must decide if you are looking to maximize interest savings or if you prefer to have clarity and a clear vision of the new amount to strategize.

Frequently Asked Questions about Mortgage Reviews

Here are some of the most frequently asked questions about this procedure:

Is it mandatory to review mortgages every year?

No, it is not something that must be done annually. It will depend on the frequency agreed upon in the contract for the mortgage review.

What are the costs of a mortgage review?

The mortgage review in Spain is free of charge. This is an action carried out by the financial institution on its own and automatically.

What happens if I change banks during the review?

To do this, a series of steps and considerations must be met. These include the mortgage subrogation, subrogation costs, interest rate reviews, completing documentation, and changes in conditions.

Which mortgages are reviewed?

All those with a variable interest rateare reviewed, including: variable, mixed, and those with specific review clauses. They must have a variable component.

Can I request a mortgage review if I've had payment problems?

Yes, a mortgage review can be requested if you have payment problems. Additionally, it's important to: Communicate with the bank, renegotiate terms. Furthermore, a partial amortization, subrogation, or renewal must be activated. It is recommended that the client has a professional advisor to guide them through all of the above.

Conclusion

Undoubtedly, the mortgage review is a fundamental process that must be carried out in Spain. It is necessary to consider everything mentioned to execute each process in the correct way. In addition, it is recommended to pay attention to each of the agreements made in the contract regarding review dates.

It is important to understand how these processes work properly. If you want to be a successful investor in the real estate world, you can count on DomoBlock. Our team of experts will provide you with excellent market options so you can execute every move optimally.Invest in Domoblock today and take your financial strategy to new heights!