The high price of housing has caused more and more parents and grandparents to decide to donate their home or transmit bare ownership of it to their descendants. A decision by which, if they are equal to or greater than 65 years of age, they will not have to pay personal income tax. However, some people prefer to save and take out a mortgage. A complex process for which certain aspects must be taken into account.
When requesting a loan, whether to purchase a home or to cover certain expenses, there are different factors that can make the final amount more expensive. Ignorance of these aspects can convince the interested party that those that offer a lower interest rate are the best option. However, and as experts warn, this could be a mistake.
As Joaquín Serrano Yuste, notary at APS Notarios, indicates on his official TikTok account, “interest is not the only thing you pay” when requesting a loan, “there may also be commissions and other expenses.” Therefore, what we recommend doing is look at the APR percentage that appears in the loan offer and which is responsible for showing the real and total cost of the loan.
When applying for a mortgage, a low APR will be the best option
The Annual Equivalent Rate, better known as APR, acts as a financial indicator of the cost or effective performance of a financial product, whether it is a loan or a mortgage. Within its percentage, the entity includes the nominal interest rate or TIN, commissions, the term and frequency of payments and other expenses associated with the product.
Due to this, and as the notary explains, “it helps to compare its cost taking into account the interest and certain expenses and commissions.” Therefore, what is recommended is choose those products that have a lower APR figureeven though they have a higher interest rate and may seem like they will involve a greater expense in the future.
To understand it, the expert gives an example. If the person interested in applying for a loan is undecided between two products with the same amount and the same repayment period, but one of them has an APR of 5% and the other with an APR of 6.5%. “The 6.5% has a higher annual cost, although the interest they announce to you is much lower“.
The opposite occurs in the case of paid accounts.
This is because, unlike the TIN, which only reflects the pure interest of the money, the APR is responsible for compiling all the expenses that the loan or mortgage will have. Therefore, not knowing this information can lead people to fall into different strategies of banking entities, which offer a product with a very low TIN, but they inflate their final cost with commissions or products mandatory linked.
Therefore, if you are looking for the best options to apply for a mortgage, what notary Joaquín Serrano Yuste recommends is to always look at “the three letters APR in the offer” and use them “to compare costs under equivalent conditions.” Although the amortization period must also be taken into account, since modifying it can lead to change the Annual Equivalent Rate even though the TIN is maintained.
On the contrary, in the process of comparing savings accounts or paid accounts, it is best to select the one with a higher APRas it indicates a greater return on money. In this sense, this percentage includes the TIN, the commissions and the frequency with which the interest will be paid, so the higher the figure, the greater the benefits.