Types of mortgages in Spain: mixed-rate mortgages

Fixed and variable-rate mortgages are the most common on the market in Spain, but there is a third type that is also worth knowing about when applying for a mortgage in Spain: mixed-rate mortgages, also known as mixed mortgages. Mixed-rate mortgages in Spain basically combine the variable interest rate referenced to the Euribor with a fixed rate. This financing alternative for purchasing property in Spain generally has a fixed interest rate during the first years of the loan and a variable rate after a certain period. Mixed-rate mortgages have advantages and disadvantages and are an option to take into account for those people with a high savings capacity. When it comes to types of mortgages in Spain, this is everything you need to know about mixed-rate mortgages.

What is a mixed mortgage in Spain?

Before we get fully into the concept of a mixed-rate mortgage, let’s first establish some context about types of mortgages in Spain:

Fixed-rate mortgages in Spain: the same interest rate is applied for the life of the loan. The interest rate is not subject to any reference index (e.g. Euribor) and therefore does not vary. The monthly instalment to be paid is always the same throughout the mortgage, even if market interest rates go up or down.
Variable-rate mortgages in Spain: the amount of the monthly instalments to be paid will go up or down according to a reference index (the most frequent in Spain is the Euribor). The interest rate applied to the mortgage is made up of the value of the Euribor plus a fixed differential. When the Euribor rises, the monthly instalment to be paid will increase and, when it falls, so will the amount of the monthly mortgage instalment.

Taking this into account, we can say that a mixed-rate mortgage combines elements of fixed and variable mortgages. During a certain period of time, you will have to pay a fixed interest rate that you will agree with the financial entity you chose for the mixed mortgage and, the rest of the time, you will have to pay a variable interest rate, calculated using the Euribor and a differential agreed in the mortgage contract.

What are the characteristics of a mixed-rate mortgage in Spain?

Mixed mortgages have a series of characteristics that are different from other types of loans:

Term: This is the time you have agreed with the bank to pay back all the money in the loan plus the interest you have fixed. As it is a mixed mortgage, during a period of time you will have fixed interest and the rest of the time it will be variable.
Financing: Mixed mortgages usually cover 80% of the value of the property you want to buy.
Interest: When you open a mixed mortgage in Spain, normally, between the first 4 and 15 years, you will pay a fixed interest rate. You will have to fix this interest with the bank and it will affect your instalments for years. When this period ends, the variable interest rate will start.
Repayment: Between the fixed mortgage term and the variable mortgage term, you will have, in general terms, a maximum repayment period of up to 30 years.

Example of a mixed-rate mortgage

The functioning of a mixed mortgage is much better understood with an example. Let us suppose that we have a 40-year mixed mortgage. One option would be that, during the first 20 years, the instalment payments are made as if it were a fixed-rate mortgage, paying the same instalment every month and without changes.

However, once we have paid the first 20 years and we have another 20 years still to pay, the remaining time of the mixed mortgage payment is made as a variable-rate mortgage. That is to say, paying according to the reference index used to calculate the mortgage (which in Spain is usually the Euribor, in most cases).

Advantages and disadvantages of mixed mortgages

Mixed mortgages have advantages and disadvantages that you should be aware of before choosing this option:

Advantages of mixed mortgages

They have the same level of linkage as any other type of mortgage. In other words, it is a banking product similar to any other mortgage.
Compared to standard fixed mortgages, the fixed interest part of mixed mortgages is usually lower.
They are usually quite flexible with respect to the terms, which allows the consumer to choose the years he wants to pay back the mortgage according to the conditions of a fixed mortgage or a variable mortgage. In other words, the division of the mixed mortgage tranches can be adapted to the borrower’s preferences.

Disadvantages of mixed mortgages

You cannot choose which interest rate is held first. In other words, you always start with a fixed interest rate and then switch to a variable interest rate.
Although the Euribor can favour the mortgage holder, it can also be detrimental to them. This is especially important when taking out a mixed mortgage, since, when working with the variable system, at least 10 years have usually passed since the mixed mortgage was taken out, so that circumstances may have changed considerably by the time the loan was signed. In this sense, uncertainty is an important disadvantage when taking out this type of mortgage.
Also, another disadvantage of mixed mortgages is that, in general, they do not usually constitute a real benefit for the borrower. This is because what is gained on one side is lost on the other. Therefore, on the whole, they do not usually represent a real saving when taking out a mortgage.

When is it best to take out a mixed mortgage?

In general, mixed mortgages are neither better nor worse than fixed or variable mortgages. However, there is a profile of borrower who can usually benefit from this type of mortgages: people who have a high saving capacity.

Why? Because those people who can save enough have the option of paying a fixed interest rate during the first years and, when they switch to the variable interest rate part, repay part of the mortgage with those savings, thus reducing the repayment term and, consequently, paying less interest overall.

Taking out a mixed mortgage in Spain

Now that you’ve got all the information, it’s time to have a look at the best mixed-rate mortgages in Spain. There are many aspects to take into account, especially the conditions of the bank where you apply for the loan. Some of the most competitive mortgage rates can be found in EVO Banco, Openbank and Bankinter, all of which can be compared on idealista/hipotecas.

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