|
The chart shown below illustrates the impact of the period in the total amount to be repaid to the bank. Inevitably, longer period loans incur in higher expenses, and thus it is recommended to avoid loan periods of 25 to 30 years, although these are at times the only possible recourse for borrowers. As an example, a 15 million pesetas loan on a period of 15 years calculated on the basis of an interest of 5% differs from the shorter period of 15 years to the longer period of 30 years as much as 7.6 million pesetas.
Logically, a larger period of repayment is for many borrowers the only possible solution for raising a considerable capital without having a big impact on repayments. Similarly, the impact of the interest rate on the total repayments is also significant.
|
|
The increase in cost where the interest rate applied is increased by one percent calculated on a 20 million pesetas loan on a 15 year period amounts to an extra 2 million pesetas.
However, some banks apply an excessive percentage in interest rates which cannot find a reasonable justification other than obtaining higher margins of profit to the detriment of the borrower. Low or nought mortgage opening commissions and low or nought early repayment penalties cannot be accepted as compensation for higher interest rates. Shopping around for the best conditions appears to be as necessary as informing the offeror of the mortgage loan of the better conditions offered by other lenders. This is a pressure tool which should not be disregarded.
|
