Money or Mortgage

Chatting to a friend recently she asked if it was better to take on a small mortgage and keep some capital back or to buy a house here outright.  As is the way with most financial questions, the answer is: - “It depends.”A lot of businesses work on the premise that it is much better to use the banks money on a daily basis and use surplus cash for other projects or to improve cashflow.  For us mere mortals though, this option can be risky if you are not methodical in monitoring your newly released capital.  You could in reality end up worse off than when you started.  And that means with a debt that you didn’t need in the first place. 
A mortgage is generally much cheaper than taking a loan and as in the UK there is a variety to choose from.  Check that you can afford to take on a mortgage i.e. you have sufficient capacity to make the monthly repayments without using your capital reserve.   Fixed and variable interest rate mortgages, low start and deferred payment schemes are the most common options. Ask your bank for details then look at offers available though other banks.  Alternatively look at their web sites.  The Caixa Catalunya bank are about to release an interest only mortgage*.  This may be a useful way to release cash if you intend to sell the property in the not to distant future, whilst keeping monthly repayments to a minimum.
I must emphasise that taking on a mortgage, no matter how small, is a legal commitment.  If you do not keep up the repayments the property could be repossessed.
You may want money reserved to say, buy a new left hand drive car in the future, or perhaps you may want to keep back some capital that you have brought with you from the UK. If so, then a small mortgage may be far more sensible than using up all your capital simply to buy a house.  After all it maybe better for you to retain some cash instead of borrowing later when a crisis has already happened. Remember while it is sitting in the bank it is earning interest. Similarly if you are a tax payer the interest you pay on the mortgage may be allowable against tax, further reducing the cost.
If you are about to buy a property make a decision before you commit yourself.  A first mortgage is attached to the property and therefore attracts a lower interest rate.  If you already own a property then the mortgage is not for housing and so a slightly higher rate will be applied. This second mortgage is also attached to the property. 
If you are one of those in the lucky position to be able to spend half the year here and the other half in the UK you may want to remain under one tax system.  If so perhaps look at a UK mortgage on the Spanish home.  The Abbey (now owned by the bank of Santander) is just one company that offers this facility.  They provide mortgages with fixed or variable interest rates linked to the Euribor rate.  On the down side though, at least one person on the mortgage document must be a UK resident and there a minimum income level of £30,000 per annum.  You will also have to check if there are any anomalies which may draw you into the both English and Spanish tax systems. 
Whether you consider a UK or Spanish mortgage there will be costs for setting up the mortgage such as; surveys, notaria and registration fees.  You should allow around 10% of the loan value for these costs. 
Finally be honest with yourself.  Are your thoughts of a mortgage to take advantage of cheap money or do you need it to keep your head above water.  If you want to take advantage of the flexibility then a mortgage may well be a good option.  If it is to fill a shortfall then you must reappraise your situation in total before you commit to any debt. 
In both cases it would be wise talk to an accountant or a financial advisor about all your options.  Talking to a professional makes you stand back and take a dispassionate view.  Not seeing the wood for the trees is a phrase I have often heard when talking to people about what their ‘ACTUAL’ expenditure really is. If you do your sums correctly however, a mortgage could be useful tool to release capital.  Happy hunting!
For more information about the new Caixa Catalunya interest only mortgage or if you have any other queries contact me on 661003324 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

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