New mortgage law

On 16 March 2019 Law 5/2019 on real estate credit contracts was published. It strengthened the information that the customer must receive, shared some mortgage costs between the parties and limited early repayment fees. The law came into force on 16 June and was one of the most significant reforms of mortgage lending in recent years, both for those who take out a loan and for those who grant it. It is worth remembering that a mortgage combines financial, legal and tax elements, which is why it is usually useful to review it with an adviser before signing.

A mortgage is probably the longest and most important financial commitment a family takes on, and many were signed without fully understanding their terms. The new rule sought to correct that asymmetry between a bank that knows the product well and a customer who takes one out only a few times in a lifetime. That is why it matters to those who already have a mortgage, to those planning one and to those who advise both.

More information before signing

The new law sought to ensure that the customer receives the necessary information in advance and in an understandable form, so that they can compare offers and decide with full knowledge, and not on the very day of signing. Having time to read, ask and consult a third party is a basic safeguard when taking on a debt that may last decades.

In practice, this means the offer should be possible to study calmly: interest rate, term, payments, fees, links to other products and the consequences of non-payment. Comparing several offers, asking about everything that is not understood and checking that what is signed matches what was offered are simple habits that protect far more than any regulatory change. If the contract includes linked products, such as insurance or other bank services, it is worth assessing separately what they add and what they cost.

Costs and early repayment

Sharing mortgage costs between the parties and capping fees for repaying early changed the calculation of what a loan really costs. Someone who knows those costs in advance can compare more precisely, and someone who wants to repay part of the capital earlier than planned knows better what to expect.

The conditions that applied depended on the date of signing, so not all existing mortgages were subject to the new rules in the same way. A mortgage signed before the law came into force may be governed by different conditions from one signed afterwards, which is why it should not be assumed that a legal change applies automatically to a contract already in force. This consideration is especially relevant for anyone thinking of renegotiating, because the applicable conditions may differ from those of a new mortgage.

What to review

Anyone about to take out or renegotiate a mortgage should ask for all the documentation, compare it calmly and discuss any doubts with an adviser. It is worth looking at the interest rate, the existence of linked products, the fees and the costs that fall on each party, and how a change in rates would affect the payments.

Those who already have one should go over their interest rate, their fees and the possibility of repaying part of the capital. A periodic review can save money in the long run, and it is especially useful before other financial decisions, such as an investment or a purchase, that may interact with the debt one already has. If there are doubts about what applies to a particular contract, the prudent course is to ask for a written explanation and review it with an independent adviser.

A mortgage is understood by reading carefully what you sign.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.