Returning to the articles on the European Standardized Information Sheet on Housing Credit, we will look at the nominal rate and effective rate fields. Obviously I recommend reading all the articles in the Simulate Mortgage Series, if you have not already done so, namely:
- Simulate Housing Credit – Initial Data;
- Simulate Mortgage Loans – Interest Rate;
- Simulate Mortgage Loan | European Standardized Information Sheet – Part I
As we had discussed in the previous article, the mortgage loan proposal consists of a fixed rate and a variable period. It is known that the rate period is determined by the sum of the 5-year swap rate observed on the business day prior to the date of conclusion of the contract plus a spread. After the first 5 years the rate will correspond to the sum of the Euribor of the month prior to the interest accrued plus a spread.
In our case we have a fixed rate plus a spread of 3.577%, that is, 1% higher than the variable rate. The dilemma of the fixed or variable rate in housing credit arises from the impossibility of determining whether the variable rate will increase enough for the fixed rate option to be advantageous.
It is known that if the variable rate increases 1% which will have an equivalent situation, but the time that will take to happen will determine your gain or loss by such a choice.
Looking at the spread, we find that the mortgage credit spread is 2.5%, which will be subsidized by 0.9% in the first 5 years and by 0.8% in the following years as long as the client subscribes and maintains assets of three products and services to be added to the salary domiciliation;
- A payment order;
- A credit card with average usage of 100 euros per month;
- Have a capital status in debt on the date of payment of the installment of 1000 euros;
- To have an average quarterly balance in financial investments of 1,000 euros, excluding savings products;
- Possess savings products with a balance of more than 1,000 euros;
- Maintain a periodic plan of monthly subscriptions with a minimum amount of 25 euros;
- To have a protection insurance
Still within the field of interest rate we can check the penalties if you do not reimburse the principal and / or interest on the agreed dates represented by the surcharge of arrears of 4% and also the tax benefits for contracting housing credit for acquisition, construction or improvement of real estate for own and permanent housing.
We can thus conclude that the field of interest rate, in our case in particular, returns information relevant to decision making and comparison with other proposals. It also provides us with information so that we can find answers to the following questions common to most customers:
Would You Like To Always Pay The Same Benefit?
The existence of a fixed rate period for 5 years is intended to provide security and stability to the customer, but may be a more expensive option.
Would you like a lower spread ?
As you can verify is possible the existence of a promotional spread, however, the conditions for obtaining and maintaining such spread are strict. A slip may mean having a low and a high spread.
If you want to have the lowest spread in the market we suggest you check out the Daisy Miller housing loan simulator. It is possible to save money with your housing credit by simply having some consultation and negotiation.
Of All Conditions By Which Should I Choose?
To own the promotional spread you would need to have four products or services, one mandatory (domiciliarity of payroll) and three of a series of options identified above.
Of all the options we can identify one that will not mean an increase of charges, the domiciliation of a payment order, such as water, electricity, gas, etc …
However, the rest mean charges for the customer, so you should choose according to your needs. For example, unemployment insurance has never been as obvious as it is today, although its premium is extremely high.
Similarly, planning for retirement through a retirement savings plan seems to me an interesting strategy if we take into account the state of Social Security. In this case, the aspect to consider is only possible charges that will exist with the subscription and management and what kind of remuneration the product offers.
The option to have a debt capital of 1,000 euros only makes sense if you are already a customer of the bank and even have an active consumer loan. However this option is temporary because your consumer credit will have a shorter term than your housing credit, so in the future the most likely is that you will not comply with this condition.
TAE / TAER
The effective annual rate and the revised annual effective rate allow us to ascertain the true cost of housing credit and compare with other simulations.
If you want more information about this type of fees, I recommend reading the article TAN, TAE, APR and TAER, as it will allow a better understanding of these indicators.
TAE and TAER in our case, has a point that is interesting to focus on, namely, the presentation of the value for these indicators without considering life and housing insurance.
Taking into account that the TAE reflects all the costs of housing credit, for the less attentive customers, comparisons between wrong proposals may arise, since we present a APR in our simulation that does not incorporate life insurance and housing.
As you can verify our case, the difference is approximately 0.7% which makes all the difference. So here we have an excellent example that a careful reading of the European Standardized Information Sheet will make all the difference in choosing the best housing credit simulation.