A mortgage simulator is a tool that allows us to approximate the mortgage payment and facilitate the task of forecasting the amount that we will pay.
Personal loan data
Mortgage signing is the main route chosen by Spaniards to buy a home. According to data from the National Institute of Statistics (INE), 50% of those who buy a home apply for a mortgage to pay it.
But before applying for the mortgage we must do many calculations to know in advance if we can meet the payments. The best option is to use a mortgage simulator. A financial tool available on the web that allows us to know how much our home to buy will cost us each month and if it will be possible to face it.
What is a mortgage simulator?
It is a financial tool that allows you to perform all the necessary calculations to obtain a fairly faithful simulation of a mortgage . This tool was only available in banks and many have included it on their websites to make decision-making easier. But keep in mind that the mortgage simulator is just that: a simulator. The final conditions and fees will depend on your bank.
This home loan simulator allows you to:
- Calculate the amount of the mortgage, that is, the money that your bank lends you
- Calculating the monthly fee
- The interest that you will have paid to the bank, once the mortgage ends
- The cost of the mortgage, that is, the additional taxes, fees or other amounts that must be added
A good mortgage simulator should allow you to make faithful comparisons of the different mortgage options offered by entities , so you will have a clearer vision of the options of each bank. Another general use that you can give the mortgage simulator is to calculate the cost of the partial amortization and thus determine if that will imply a reduction in the payment and the repayment time.
As with other loan simulators, mortgage calculators can be very simple or actually complex and possibly more true to life. There are a series of variables that, as you will see in the next point, will help you adjust more to the monthly payment of your mortgage with the minimum interest and the maximum interest.
How does a mortgage calculator work?
If you have ever used an online quick loan calculator such as the ones you can find on our pages, it will not be difficult for you to understand how the mortgage calculator works. Here we are going to describe a standard, although you should keep in mind that each entity can present different conditions.
The first thing, how much money are we going to request for our mortgage?
One of the most important banking consequences of the 2008 crisis is that 100% of the amount of a home is not lent . Banks usually offer mortgages for a maximum of 80% and you must put the rest. In our blog we have talked about how you can apply for a mortgage without having prior funds .
As in other loans, you must request the amount you need and that you are able to repay. In this case we are going to work on the theory that we will request a € 200,000 mortgage.
Repayment term and interest rates
Interest is included in the repayment fee. As with a traditional loan, the longer it takes to pay the mortgage, the higher the interest. But what are the interest on a mortgage? It is not a minor issue, on the contrary: it is the most important part of the mortgage.
Mortgage interest can be of two types:
Variable mortgages have a fixed rate of interest throughout the entire mortgage. It will not fluctuate in the event of changes in the reference index, in this case the EURIBOR . Fixed-rate mortgages have higher interest rates and have specific conditions that you must clarify with your bank.
Variable mortgages have interests that fluctuate from one month to another based on the reference index, which is usually the Euribor. This has a positive point: the fee can be reduced throughout the payback period if the benchmark falls. But be careful, because it can also go up. The interests in this type of mortgages are fixed as follows:
Reference Index (Euribor or IRPH ) + Differential
The spread is the interest applied by the bank.
When you calculate your mortgage with the simulator, we recommend that you keep these fluctuations in mind and check the history of official mortgage benchmark indices. Thus, you will be able to see what has been its maximum and what its minimum and know the range in which you are going to move. To understand the importance of these fluctuations, you must think that the bursting of the housing bubble in the United States in 2007 was caused by a rise in the benchmark index and the increase in mortgage payments. Many people could not cope with the payments.
Calculate your mortgage with the simulator
Let's do the test with our calculator. Let's imagine that we are going to request a mortgage for € 120,000 to be repaid in 20, 25, 30 and 40 years with an interest of 2% (1% theoretical Euribor + 1% spread).
The fees would be the following:
- Amount € 200,000 * 20 years * 2% interest: Fee € 607.06
- Amount € 200,000 * 25 years * 2% interest: Fee € 508.63
- Amount € 200,000 * 30 years * 2% interest: Fee € 443.54
- Amount € 200,000 * 40 years * 2% interest: Fee € 363.39
As you can see, these simulations allow us to extract what we would pay for a 'fixed' fee if the reference index and the spread remain unchanged . But we also recommend doing a simulation of the maximum fee that we would pay. The historical maximum for the entire Euribor cycle was 5.40%, reached in summer 2018 . Since then, it has been falling to the August 2019 low of -0.356%.