As we foresee in our last article on Simulate Credit Housing , today we will devote a little of our time to observing the European Data Sheet on Housing Credit and due to the importance of such document this article will be divided into four parts so that the your reading does not become tiresome.
What is the European Standardized Information Sheet?
The European Standardized Information on Housing Credit Report (FEINCH) is, in my opinion, the most important document for analysis and decision making on which bank to choose to buy home.
I believe that it is the only document with transparent and complete information before writing. In this document it is possible to find detailed information on the housing credit product that appears in the simulation, the conditions of the spread attribution, the consequences in case of non-compliance with the conditions, the necessary insurance and other conditioned products, among others.
In it we can count on detailed information on various points of interest and in each one of them we will have a vision of what our contract will be in case of acceptance of the proposed conditions. Let’s see:
- Preliminary Observations – identifies the binding nature of the simulation;
- Lender – Identifies the bank;
- Product Description – small summary of the proposed product;
- Nominal Rate – identifies the interest rate, respective index and spread, as well as bonuses and other conditions;
- TAE and TAER – Identifies and clarifies the determination of these indicators;
- Amount – the value of the loan;
- Duration – term of the loan;
- Number and Periodicity of Benefits ;
- Amount of each Benefit ;
- Additional Costs – identify any recurring and non-recurring costs;
- Early repayment – conditions for early repayment.
As you can see we have an extensive analysis document with information of value for decision making when comparing housing loan proposals.
In this first field we identify that the bank declines any obligation to comply with the proposed in the simulation, since it considers that the information and conditions that led to the determination of the same may undergo changes at the time of validation.
With Good Faith the parties involved intend to comply with the proposal in the simulation, insofar as the client can and intends to prove the veracity of the elements provided and the bank intends to respect the proposal made to the client, however, there is a fundamental element that will influence the conditions proposed by the bank which is the value of the simulation.
Most banks determine the value of the spread based on the financing / guarantee ratio. In our case, the base spread was determined from the principle that the property in question will have a value of 120,000 euros.
In banks where the value of the indicative assessment on which the proposal is submitted is not verified and the value of the actual assessment is lower, they adjust the conditions of the proposal to the new financing / guarantee ratio. However, I know of a few banks that favor the client whenever the value of the evaluation is higher than indicated in the proposal.
Lender and Product Description
These fields identify the bank and provide a short summary of the credit product allowing a description of the type of product, which in our case is a product consisting of a fixed rate period and a variable rate period for general scheme of housing credit that intend to protect themselves from market oscillations in the first 5 years.
It also identifies the guarantee that the product requires and the conditions of the same ( mortgage free of charges or charges ), as well as the possibility of the client request capital shortage for a period of 5 years.
Regarding the existence of a fixed rate period and a variable rate period I advise reading the articles on Fixed Rate or Variable in Housing Credit that although interest rates are not updated the concept that you want to convey is timeless and will allow you to draw some conclusions about this dilemma.
- Fixed or Variable Rate on Housing Credit – Part I
- Fixed or Variable Rate on Housing Credit – Part II
- Fixed or Variable Rate on Housing Credit – Part III
Regarding the guarantee and the period of capital shortage that may reach 5 years, we can conclude that, the main guarantee of the credit is the mortgage of the property, however, the bank may require reinforcement of collateral whenever the risk of the operation requires it .
On this item, immense are the factors that can lead to the change of the risk and consequently demand reinforcement of guarantee, however, we can identify some:
- Effectiveness of borrowers ( worth what it’s worth !!! );
- Property valuation lower than expected;
- Credit responsibilities throughout the financial system;
- Possible overdraft times in the current account statement;
- Delays in payment of liabilities;
- Among others…
With regard to the capital shortage, the alert for the increase in the cost of credit that this provides.