Update December 2018 - Belgian banks offer loans to buy a property in Spain. But you can also take out a loan in Spain. Spanish banks offer mortgage loans from 5 to 20 years. Some banks allow you to pay off your loan earlier provided you pay a break-up fee of between 0.25 - 2% on the amount still to be paid off. Is borrowing in Spain for the purchase of a second residence an interesting financing method?
A simple example
You wish to purchase a €120,000 holiday home in Spain. You can borrow a maximum of 60% per cent in Spain, so you are borrowing 72,000 euros. The annual interest rate is 2.75%. In principle, if you borrow for 20 years, your monthly repayment will be lower than if you opt for a 5-year period. At 20 years, you will pay off 390 euros per month. At 10 years, it will be 687 euros per month. At the 6th year, you decide to sell your second residence and pay off the loan in full.
In the case of a 20-year loan, you paid back 17,620 euros of capital and paid 10,486 euros of interest. So you still need to pay off 54,380 euros of capital. Since you sell the house after the fifth year, you will pay a fee of 0.25% on the principal on this amount. This is 136 euros. No more interest.
In the case of a 10-year loan, you paid back 40,808 euros in capital and paid 8,652 euros in interest. You still need to repay 31,192 euros of capital in this situation, so your break-up fee is 78 euros.
You can see that in this example, borrowing at 20 years is 1,892 euros more expensive than borrowing at 10 years. On the other hand, your monthly repayment will be 390 euros instead of 687 euros. However, from an investment point of view - for example, if you wish to rent out your second residence regularly - it may be more attractive and feasible to borrow in Spain on a 20-year term because your monthly charges will be significantly lower.
From March 2019, there will be a new law comes into force which fixes the severance payment.
In case you opt for a mortgage with fixed interest rate, the maximum severance payment is 2% during the first 10 years. After the tenth year, it is and 1.5%.
If you have taken out a mortgage loan with a variable interest rate, it is 0.25% from the third year. From the fifth year, it is only 0.15%.
However, if you take out a mortgage loan, there will be additional costs. Find the cost of a mortgage in Spain here.