The floor clause is one of the most damaging figures for the applicants of a mortgage loan. To the point that a wide debate has been created about its application and that you can even claim through a legal action. Not in vain, the floor clause affects that you cannot save you many euros when financing the purchase of your house or apartment. It is a clause that you sometimes do not know that you are signing and that can undoubtedly put you in more than a bind in any scenario. Sometimes as a result of abuse by the entity that markets this financial product.
It is very important that you know that the land clause, also called mortgage land, is a financing model that benefits the entities that are in charge of marketing this line of credit for the purchase of a home. To the detriment of the users themselves that will be seen harmed by the conditions of this special contract that are included in this class of mortgages. To the point that you will have no choice but to pay more money of the initially budgeted and that will require a more than special treatment.
In any case, it is basically a contractual clause that establishes a minimum limit to the interest that will be applied in the installment even if the interest rate falls. It is, therefore, very little advantageous for the interests of bank users who will not be able to benefit from a possible and hypothetical interest reduction. As has happened in recent years, where the European benchmark, Euribor, has been at the lowest levels in recent decades. Specifically, in negative territory when trading at the moment at -0,161. A very beneficial factor to improve interest rates in this class of financial products.
How to know the floor clause?
If you want to know if your mortgage credit is made under this clearly abusive condition by financial entities, you will have no choice but to attend to the following tips. First, read the fine print of the contract and if so under what conditions its application materializes. It will be the moment for you to assess whether it is appropriate for you to formalize this kind of credits. Not in vain, you can opt for another model that does not incorporate the floor clause.
A second strategy will consist of a possible negotiation so that this clause can moderate its levels of ground in the mortgage. At least you can raise it by a few tenths of a percentage. But in any case, it will not be very beneficial for your personal interests because at the end of the day you will have no choice but to pay for the acquisition of that home that you have liked so much. Now is the time for you to know what you are signing on this very special mortgage.
Characteristics of the floor clause
This model in this line of credit for the purchase of a property is fundamentally characterized because their interests are usually reviewed between one and two times a year according to a differential which is usually the Euribor. In this sense, the clause usually implies a downward limit with respect to the variable interest of the mortgage. In practice it means that you will have agreed with your bank a minimum percentage that at no time can be violated. And that is especially negative in bearish scenarios in this class of financial assets. On the other hand, the debtor entity will have managed to ensure that you will have to pay a minimum interest from which it will always benefit.
To avoid these situations, it is completely necessary for credit institutions to inform users of these kinds of conditions that are so abusive to your interests as users. Even if necessary, with all kinds of explanations about its application and among which the informative brochures stand out. Another very effective measure in the face of this scenario presented by the mortgage market is not to contemplate it in very long terms where there may be the possibility that interest rates will drop drastically. Or at least to benefit from a more affordable monthly fee that will fit your budget.
User protection measures
In any case, the executive has approved a regulation of urgent consumer protection measures with respect to this kind of special clauses in mortgage loans. With no other purpose than to develop the defense mechanisms to protect you from these conditions in real estate loan contracts. Where it will be very important to check if they really comply with the information requirements demanded from the high judicial authorities.
In another vein, it cannot be forgotten that financial entities have received more than half a million claims for floor clause. Of which about 80% have supposed for users a consideration in the form of cash, or at least with compensatory measures. However, some are still pending response and in other cases they have simply not been admitted for various reasons. In any case, it makes a difference in favor of the holders of the mortgages very important.
Keys to detect these conditions
Of course, it is quite common that at the time you have formalized this financial product, it has not explained to you from the other party what the mortgage floor consists of. Or even the scenario is worse, as this controversial condition is hidden in a complicated contractual framework. Of all of them, you have some mechanisms to show that you are one of these people. Do you want to know what these cases are?
If you cannot detect the floor clause in the contract, the simplest solution is based on checking the last receipt that the bank has sent you. So that in this way, you can verify if the interest rate that appears in this document is not the equivalent to the sum of the Euribor plus the differential that you have agreed with your credit institution. Because in this specific case it will be the floor of your mortgage.
The fee remains fixed
On the other hand, there is another identification system that never fails to know if your mortgage has a floor clause incorporated. It consists of showing that the mortgage payment always remains fixed despite variations in the European benchmark, the Euribor. If this were the case, do not doubt that you may be one of the thousands affected by these abusive conditions on the part of financial institutions. You will have no choice but to claim it, even through the courts if the circumstances so require.
On the other hand, it can also be camouflaged by a series of expressions that are used in deeds by banks and in which they refer to this condition. Without yourself realizing that you are under this mortgage situation. Of course, the best advice is that you are correctly advised by professionals who can detect these banking tricks. In this sense, one of the denominations used by the issuing entities is the "downward variation limit of the applicable interest rate". If it appears in the contract, do not doubt for a moment that you have a floor clause in the contract.
Eliminated from the contract
The good news for your interests as a user is that most of the credit institutions have eliminated the floor clauses of mortgage loans as a result of the provisions of the Supreme Court Judgment of May 9, 2013. In which are declared void and therefore they are no longer applied, even if you have signed the operation before this sentence. With the possibility of claiming the amounts that have been overcharged through the monthly installments. Even with the option of filing a claim with the issuing entity of this financial product.
This is one of the reasons why it is a good time to subscribe this line of credit. Not only do they not include this controversial clause, but they are even exempt from commissions and other expenses in its management and maintenance. To which is added the presentation of increasingly competitive spreads. Where in the current mortgage offer you can find proposals below 1%. With a very important savings on the money that you will have to pay every month in the mortgage payment.
However, this is a scenario that will not last forever as a result of the foreseeable rise in interest rates in the eurozone countries. Since the intention of the European Central Bank (ECB) is to carry out this measure at the end of the year, as its president has declared in the last meetings of the regulatory body of the old continent. In which case, the spreads on variable rate mortgages will grow progressively from the next few years. At this point, it will be time to decide whether it is better to formalize the credit at a fixed rate. Among other reasons, because you will always have the same monthly fee and without last minute surprises.