An open mortgage or mortgage credit is a financial product that allows the holder to make provisions on the credit of the money that has already been returned. In other words, it gives the option of borrowing the amortized amounts again to use the money to finance other expenses: a reform, a car…
Let’s say, for example, that we have signed one of these products and that we have already returned 20,000 euros. In that case, we could make a provision for a new loan of a maximum of 20,000 euros, with the same interest as the mortgage and with the term agreed with the bank.
Are contracting and open mortgage a good option?
It depends. Open mortgages, which is the name given to strict mortgage loans, allow dispositions of the money that is returned. On paper, this can be very advantageous in certain cases, but this credit facility means that we run certain risks :
- If we do not keep good control of the provisions, we can end up seriously over-indebted. Making it easy to get extra money can be a double-edged sword because if we are not careful, we can end up accumulating a large volume of debt.
- Although the interest of an open mortgage is lower, a provision can be more expensive than taking out a personal loan. Normally, when making a capital provision, the client decides to significantly extend the repayment term so that the monthly mortgage payment is not very high. In this case, more interest can be generated than would be accrued with a consumer loan (the longer the term, the more interest is generated).
What limitations do these mortgage loans have?
If we understand all the risks of mortgage loans and we choose to contract one of these products, we must be aware that we will not be able to freely dispose of the money that we have already amortized. The conditions for making a withdrawal may vary depending on the bank, but normally we will always find ourselves with the following limitations:
- Making a drawdown on an open-end mortgage often costs money. In general, mortgage loans include the so-called disposal fee, which we will have to pay each time we decide to withdraw a fraction of the amortized capital.
- Both the amount and the term of the provisions will be limited. Logically, the amount of money that we can withdraw will be limited to what we have reimbursed. In addition, the entity will establish a minimum and maximum term to be able to return the capital provided.
- Subrogating an open mortgage to another entity is not easy either. On paper, a mortgage loan can be changed by banks, but most entities prefer not to carry out this operation. In fact, in many cases what they propose is to sign a new contract and cancel the open mortgage.
In addition, we must bear in mind that very few entities currently have these products. Right now there is only one bank that markets a mortgage loan: it is Bankinter, whose Hipoteca SIN allows you to draw down money that has already been amortized.
What must be assessed when contracting open mortgages?
Removing the particularity of the provisions, the truth is that a mortgage loan is not very different from a conventional mortgage, since in the rest of the conditions they are practically the same. Next, we will see what are all the aspects that we should look at if we decide to hire one of these products:
- Applied interest rate: the interest can be variable, fixed, or mixed, depending on what the bank offers us. If it is variable, during the first year a fixed rate will likely be applied to us, which will surely increase the cost of the first 12 installments.
- Commissions: in addition to the classic commissions (opening, early repayment, subrogation, etc.), we also have to see if the bank will charge us a surcharge for each capital drawdown.
- Bonding: as with conventional mortgage loans, to get the best interest we will have to meet, in many cases, several requirements, such as direct debiting the payroll or signing various insurances and other products.
- Drawdown conditions: finally, we will have to see what the limits applied to drawdowns are (permitted frequency, minimum and maximum amount, term to return the money, etc.).
Two alternatives to the open mortgage
If we do not take out an open mortgage, either because we are not convinced by its conditions or because the bank does not have one of these products, our options for getting extra money will not disappear. Let’s see what other ways we can obtain financing to cover any expense:
- Request a personal loan: with these products we can obtain between 500 and 50,000 euros (or more) to finance any type of particular project. Its maximum term can reach 10 years, while its interest is around an average of 8% APR.
- Extend the mortgage: we can also negotiate with our entity to increase the capital of our mortgage loan. In this case, the interest will be that of the mortgage itself, although we will have to pay the novation costs (notary, registration, taxes, etc.).
In both cases, we will have to make sure that the installments of all our credits do not exceed 35% of our monthly income, which is the percentage that finance experts advise dedicating to the payment of financial debts.
