We are one step closer to getting the house of our dreams, but before we get the keys, it is important to understand all the terms and conditions of the mortgage, if any, and to be aware of what we are signing. This is where a fundamental document comes into play: the Transparency Act. But what is it and why is it so important?
Law 5/2019 of 15 March, approved in 2019, aims to protect buyers by ensuring they understand every mortgage detail before committing. The notary plays a key role in this process, as a guarantor of transparency. For this reason, anyone buying a home with a mortgage in Spain must go to the notary at least twice to sign the Transparency Act and again to formalise the sale.
This is because signing a mortgage deed of sale is a very important step for an individual's or a family's finances, and one that should be considered carefully and with full knowledge of what it entails, to see if it is something that can be taken on. Have you heard of this process? If you are about to take this important step, we will explain everything you need to know about the Transparency Act and what to expect on the day of your first appointment at the Notary's office.
What is the Mortgage Transparency Act?
The Transparency Act is one of the essential requirements established within the new Mortgage Law. This regulation was created in response to the situation of the real estate bubble crisis, when the lack of information and the unrestricted granting of mortgages led many people into complicated situations.
The Transparency Act is a document that certifies that any buyer of a home in Spain has received the explanations and advice of a notary before signing the mortgage. In this document, the terms and conditions of the mortgage are reviewed, one by one, and any points that are not understood are clarified.
This document is read on the first visit before a notary. The notary is always chosen by the buyer and this first visit is to check and advise on the mortgage loan. This meeting ends after the test with questions about the conditions set by the bank for the mortgage. The test is carried out by the homebuyer. These conditions will be reflected in the mortgage deed that you will sign with the bank on the day of the sale, which is equivalent to your second meeting with the notary.
Documentation before the first meeting before a notary: reviewing the transparency report at the notary's office
Before signing the Transparency Act, the banking entity must have provided the buyer and the notary, at least ten days before the signing of the purchase and sale contract, with the following documents.
- FEIN. It is the European Standardised Information Sheet and collects all the information related to the mortgage, payment terms, conditions, the interest rate that applies, etc. It is the binding offer that the bank must send within 10 days of signing the mortgage. At the time of signing, the bank must maintain all the conditions that appear in the FEIN.
- FIAE. This is the Standardised Warning Sheet. It is a document to warn of all the risks of the mortgage and the most sensitive clauses of the loan.
- The copy of the contract where all the firm's expenses are included. This document is essential for the notary to prepare the contract of sale.
- Another document contains the details of the insurance policy you have with the bank. The most common ones are usually home and life insurance. If the bank offers you an additional financial product to improve the interest rate conditions of the mortgage loan, such as car insurance, pension plans or credit cards, you must also send all the documentation related to it.
- Finally, we must also receive a document that includes the payment of the loan instalments in different scenarios, as well as the distribution of mortgage expenses, notary expenses or related expenses between the bank and the client, and who is responsible for paying them.
It is crucial to have received and read these documents before the notary reads the minutes of the first meeting. The first question the notary will ask you is whether you have received these documents:
The most common questions in the final test of the transparency report
After reviewing all the conditions of the mortgage with the notary, the notary will carry out a “yes” or “no” test to ensure that you have understood everything about the mortgage you are about to take out. These are the questions that you will find in the Transparency Act:
Pre-contractual documents and choice of notary
You must reply when you have received all the pre-contractual documents from the bank by e-mail. Having freely chosen the notary and having been informed of this right
Mortgage characteristics and conditions
Know the characteristics of the mortgage loan. You will be asked about the capital, the duration of the loan, the amount of the instalments and the terms of payment.
The interest rate you have agreed
Another question in the test is whether you understand the difference between the fixed rate and the variable rate, and if you know the interest percentage to which your mortgage is subject, as well as the rate discounts for contracting different products. For example, insurance, direct deposit of your salary, debit card or pension plans with the bank.
Creditor subrogation
Be aware that you can change your bank mortgage at any time you wish, as well as of the conditions and requirements necessary to do so.
Early loan repayment
You will also be asked if you are aware of the early repayment fee, if any. You will also be told about the different ways of prepaying your mortgage.
Commissions
If the loan includes fees for opening the loan, changing the conditions or defaulting on payments, they must be included in the mortgage contract, the notary must inform you of them and you must be able to understand them.
Conditions for non-payment
Another point that has been commented on when reading the minutes and that you will be asked in the test before the notary is whether we understand what late payment interest is and what it means in the event of non-payment. You will also be asked what is the maximum amount of accumulated debt that the bank can declare overdue and claim from you.
Questions related to foreclosure
You will be asked whether you are repaying this debt with all your assets or only with the house you have bought, knowing that failure to pay the loan may result in the loss of the property and its sale at public auction and that the value of what you have contributed may not be sufficient to pay it off.
Rely on Prime Invest to guide you through the buying and selling process
The Transparency Act is a step before signing the title deed. It was created to ensure that homebuyers with a mortgage are signing a document they understand and that the terms it contains are beneficial to their financial situation. It also strengthens confidence in the property market.
The support of a specialised service such as master broker is key to the success of this process. Thanks to our experience as property advisors and marketers, our multi-disciplinary team and our comprehensive approach, Prime Invest has become a strategic ally for both developers and buyers, ensuring a clear, efficient process in line with industry best practices.
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