Do you have a mortgage loan?
Do you monitor when your interest rate is reset?
Have you checked the outcome of this reset and noticed that recently, despite the low interest rates on the market, your mortgage rate has a floor and doesn’t go below that?
If so, you have a ‘floor clause’, which could be deemed as, illegal but some people are not aware of it. In whichever case, the difference between the interest you would pay if the floor clause was not applied and what you are effectively paying, can, in the end, amount to quite a considerable sum.
A Spanish mortgage loan with a variable interest rate will usually specify a benchmark rate (indice de referencia, in Spanish) – typically the Euribor rate – upon which interest repayments are calculated, plus a margin for the bank (known in Spanish as diferencial)
In some cases, an additional clause is included, so that under no circumstances can the interest rate go below a certain figure (e.g. 3 or 5%), regardless of market fluctuations. This is an example of a typical floor clause.
Floor clauses can be problematic because if the benchmark rate is low, the mortgage debtor will not be able to benefit from low interest rates if he or she has a floor limiting the decrease of their own rate.
As you might probably know, on 9 May 2013, the Spanish Supreme Court declared certain floor clauses illegal. Banks were ordered to remove the clauses and to issue a refund to the claimants from whom excess interest payments had been collected.
Since then, courts all over Spain are following suit and declaring certain floor clauses illegal. In order to assess whether or not a floor clause is illegal, courts look at a number of factors, including whether:
a)Debtors were led to believe that the mortgage loan had a variable interest rate in which the decrease of the benchmark rate would lead to decrease in the value of money;
b)Enough information was provided tat the floor clause was a crucial element of the contract;
c)Debtors were given the false impression that the presence of a floor necessarily implied the fixing of a maximum interest rate;
d)The floor clause was inserted amidst an overwhelming amount of data thus disguising it and distracting the clients attention;
e)Different possible scenarios were explained to the client, before signing the contract, as to how the interest rate could be reasonably be expected to fluctuate at the time of taking out the mortgage;
If you think you may have been a victim of a floor clause in your Spanish mortgage, then please do not hesitate to contact us on our free number 800 600 125 – our Spanish Lawyers will review your deeds for you and give you an answer within 24 hours as to whether your Spanish mortgage contained an illegal floor clause.