When we enter the world of mortgages, we encounter a lot of new terms. The reality is that, to access a mortgage loan with good conditions and that fits our profile as best as possible, we must first know each of these concepts very well. Among them is the mortgage differential. It is very important to be clear about what it is about, fundamentally, to understand how much you will have to pay for your mortgage loan. Staying informed will give you the ability to make much safer and more accurate decisions. If we look for the definition of the word “differential” we will find that it is “something that differentiates or serves to differentiate.” The reality is that the spread of a mortgage undoubtedly makes a difference, however, it does not mean that it makes things different. When you apply for a mortgage loan, banks lend you the money at an interest rate. Said interest can be fixed or variable , that is, the sum of a reference index and the differential. It is for this reason that it is very important to understand very well what the differential of a mortgage is before applying for one.
The differential of a mortgage
When we talk about the differential of a mortgage we are referring to the fixed percentage that must be added to the mortgage reference index in the case of variable rate loans. An example to understand it better: in case a mortgage loan uses the Euribor as a reference index, which is the most used in Spain, and adds an additional , you should know that this figure is the mortgage differential. Who applies the mortgage differential? Banks are in charge of defining what differential they apply to their mortgage loans. In general, this is not a fixed and universal data for all mortgage loans. How does the differential influence the mortgage? When it is a variable rate loan, the differential is added to the reference index of the mortgage loan, which will generally be the Euribor. This means that the higher the spread, the higher the interest on the mortgage loan. Is it possible to calculate the mortgage payment with its differential? The answer is yes, it is an extremely simple operation . It will be enough to add the differential to the benchmark rate. An example to understand it better: if it is a mortgage at Euribor + with the Euribor at , the rate you must pay will be .
Is there the possibility of negotiating or reducing the spread on a mortgage loan?
The answer is yes, in a mortgage loan practically everything can be negotiated. However, the limit will vary depending on each bank . You can find some more flexible and others less. Regarding this, the interest rate, in other words, what defines the differential in variable rate mortgage loans, is not usually fixed. It is possible to negotiate and vary, it can even be reduced. In general, the most common thing is that the mortgage loan differential varies depending, on the one hand, on the solvency and personal situation of the client requesting the loan, and on the other, on the years of the mortgage. It is very common that clients who have a better risk profile, that is, who have a permanent and stable job, have savings and a low level of debt, among others, can obtain better conditions for their mortgage loan. Also, we must make it clear that, in subsidized mortgage loans, the mortgage differential also varies depending on the linked products that you choose to contract. In other words, if you add home insurance, life insurance or opt to domiciliate your payroll to the mortgage, you will be able to access a much lower differential than if you don’t.
