What is a mortgage floor clause?
A mortgage “floor clause” is a clause contained in some, but not all mortgages, and only offered by around 30% of banks. A floor clause sets a minimum interest rate for mortgages, usually around 3 or 4%.
The problem is that, were the floor clause too high and the Euribor rate below it, no matter how low the Euribor (the rate on which mortgage rates are based) might be, the mortgage payments will never decrease below the threshold of the floor clause.
This is what now ocurring with those interest rates hovering around the 0.5% mark. Many customers should be enjoying the huge drop in monthly mortgage repayments that so many others are benefiting from at the moment, but those with a mortgage floor clause are not able to.
How low does the mortgage floor rate go?
The mortgage interest rate is usually set at the Euribor + 1% mark. With interests so low at the moment – 0.5% – customers should be paying approximately 1.5% in interest. However, those with a mortgage floor clause will currently probably be paying anywhere between 2.5% and 4.0%.
Is there a cap on mortgage interest rates?
Most banks do put a cap on their mortgage clauses, but they are generally so high that these amounts will never be reached. Mortgage interest rate caps could be as high as Euribor + 15%.
In addition, floor clauses are usually offered with a variable interest rate mortgage. This actually means that the bank has two methods by which to calculate how much your repayments will be.
For example: If the general interest rate (Euribor + differential) sits at 5% and the floor clause minimum interest rate is lower, say at 4%, the bank will use the general interest rate.
On the other hand, if the general interest rate sits at 2% and lower than the floor clause rate of 4%, the bank will use the floor clause rate.
Therefore, the bank will always use the higher rate, no matter how high or low interest rates are for everyone else.
Is the mortgage floor clause an unfair term?
The Spanish Supreme Court has recently ruled that the “Interest rate floor clause” can be declared unfair in the event that the client/consumer were not duly informed regarding its content and implications in a fashion that is clear, transparent and understandable, before the signing of the mortgage contract at the Notary Public.
These clauses are only deemed unfair or abusive in the following circumstances:
- Should there be no cap on the top end of the interest rate
- Should the clause harm the client´s interests in some way
- Should the bank benefit from the clause
What should you do if you have a floor clause in your mortgage contract?
Take legal action. Contact Lexland Lawyers to get your money back. With a 99% success rate, we can say with great certainty that you are likely to claim back every euro that you have overpaid. You are also eligible to reclaim on average up to €15,000 and reduce the interest on your mortgage with no upfront payment.
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