Reduction in Mortgage Repayments Limited by Floor Clause
With the reduction in interest rates, currently just under 2%, many of us may have realized that our repayment has not gone down as much as it should have. The reason for this is that some mortgage loans included mortgage “floor” clauses (“cláusula suelo” in Spanish) which limited the reduction to a maximum, not allowing borrowers to fully benefit from the drop in rates. For a €200,000 mortgage this would mean you could be paying €6,000 yearly more in interests (calculations made for a “floor” set to 5%).
After making some enquiries it appears that these went unnoticed for mortgage brokers as they were written in the “small print”. If the above clause is in application it would be convenient to talk to the bank to have it removed, so we recommend that you approach your bank to find out if there is one and challenge it, requesting that it is eliminated. We do warn that it will not be easy to persuade the bank to reduce their earnings but it is well worth a try, even under the threat of stop paying the installments!
Te problem is the banks got us in this trouble, they got bailed out by us and yet it is us that is still paying when the do not follow the base rate with their mortgages yet do with their savings accounts
We’ve just been caught with this floor clause. I can’t see any reference to it in any of our documentation.
Also, for some reason that our bank manager cannot explain, although our interest payment has decreased from 6.625% to 3.0%, the part of the monthly payment that is not interest (capital replayment) has gone up considerably from the previous month. The bank manager says it is something to do with the French way of calculating the monthly repayments and he will get a better explanation for us. (we’ll see. I worry when a bank manager doesn’t know the answer)
is it really worth threatening to move our business? Isn’t that usually not cost effective?
Thanks
Hello Emerging writer,
Your bank manager is right, the French repayment system envisages low cuts on the overall montly payment as the reduction of the interest payment is compensated by a higher capital repayment. The bank manager will not be able to do anything about this other than give you an interest only period, so that you can repay less (or the opposite, an interest “holiday” so that you only pay capital). This will however require going to the Notary so sign new documents.
Regards