Mortgage vs Loan: Key Differences Explained for Spain Property Buyers

If you are planning to buy property in Spain, you need to understand the difference between a mortgage and a loan. These terms are often used interchangeably, but they are not the same thing. Knowing which one you need can save you money, time, and potential legal issues down the line.

This guide explains mortgage vs loan in clear terms. It is written for foreigners, expats, and residents who want to understand Spanish banking options. Whether you are buying a villa in Marbella or an apartment in Barcelona, this article will help you make informed decisions.

What Is a Loan? A Simple Explanation

A loan is a general financial product provided by a bank or lender. A loan gives you a fixed amount of money that you repay over an agreed period with interest. Spanish banks offer several common types of loans:

• Personal loans
• Consumer credit
• Car loans
• Small renovation loans
• Short-term financing

A loan is usually unsecured. The bank does not hold any asset as security. This means interest rates are higher and repayment terms are shorter.

Loans work well for smaller financial needs. They are not designed for buying property. When you purchase a home, you need a mortgage rather than a general loan.

What Is a Mortgage? Full Meaning Explained

A mortgage is a secured loan used for property purchases. The property acts as collateral. If payments stop, the bank has the legal right to recover the debt by selling the property. This security allows lenders to offer lower interest rates and longer repayment periods.

Non-residents buying a home in Spain often receive up to 70 percent loan-to-value. Residents often receive higher financing depending on the property and their financial profile.

A mortgage is required for property purchases in Spain, including flats, villas, townhouses, and new-build homes. Looking for the right mortgage? Tharros Brokers can guide you every step of the way.

What Is Collateral?

Collateral is an asset pledged to secure a loan. If you fail to repay, the lender can seize the collateral to recover their losses. In mortgage transactions, the property itself serves as collateral.

Collateral reduces risk for lenders. This is why mortgage and loan products secured by assets have lower interest rates. Without collateral, lenders charge more to compensate for higher default risk.

In Spain, the mortgage facility registers the property as security through a notary. This legal process protects both parties and ensures transparency.

Mortgage vs Loan: Key Differences Explained

Understanding loan vs mortgage is essential before you commit to either product. Here is a detailed comparison:

When Do You Need a Mortgage in Spain?

You need a mortgage when buying any type of property, including:

• Flats
• Villas
• New-build homes
• Holiday homes
• Investment properties

A mortgage can also be used for refinancing and equity release. Many foreign buyers choose a mortgage to reduce upfront costs and maintain liquidity.

If you need a mortgage for your flat, villa, or any property in Spain, apply now with Tharros Brokers to make the process smooth and hassle-free.

When Is a General Loan Used Instead of a Mortgage?

Not every financial need requires a mortgage. General loans suit smaller, non-property expenses:

• Renovation loans: If you own property and want to renovate, a personal loan covers materials and labour.
• Furniture loans: Furnishing a new home can cost €10,000 to €30,000. A consumer loan helps spread this cost.
• Deposit funding: Some buyers use loans to cover part of their mortgage deposit, though this increases overall debt.
• Short-term liquidity: If you need quick cash for an emergency, a personal loan provides fast access.

Loans and mortgages differ in risk. Unsecured loans carry higher default risk, so banks charge more. Mortgages benefit from property collateral, which protects the lender.

Mortgage vs Home Loan: Are They the Same in Spain?

In Spain, the terms are largely interchangeable.

• A mortgage is a loan secured by property.
• A home loan refers to a loan specifically used to buy a home.

In practice, when you apply for a home loan in Spain, you are applying for a mortgage. Both terms describe the same product. The property secures the loan, and you repay it over many years.

Some countries distinguish between the two, but Spanish banks do not. When you search for home loans and mortgages, you will find the same products.

Mortgage Rates in Spain: How They Compare to Loan Rates

Interest rates are one of the biggest differences between loans and mortgage products.

1. Mortgage Rates

Spanish mortgages typically range from 2% to 4% for residents. Non-residents may pay slightly more, around 3% to 5%. Rates depend on whether you choose fixed or variable terms.

• Variable rates: Tied to Euribor, the European interbank rate. When Euribor rises, your payments increase.
• Fixed rates: Locked for the entire term. You pay the same amount each month, regardless of market changes.

2. Personal Loan Rates

Personal loans in Spain start around 5% and can exceed 10%. Unsecured loans carry higher rates because lenders assume more risk.

3. Current Trends in Spain

Euribor has fluctuated significantly in recent years. After years of negative rates, it turned positive in 2022. This has increased mortgage payments for variable-rate borrowers. Fixed-rate mortgages have become more popular as a result.

When you compare mortgage rates and home loans in Spain, mortgages consistently offer better terms due to collateral.

Best Banks in Spain for Non-Residents

When applying for a mortgage as a non-resident in Spain, choosing the right bank can make a big difference. Here are some top options:

1. Banco Santander Spain
2. BBVA
3. CaixaBank
4. Banco Sabadell
5. Wise (Online Alternative)

For a detailed comparison and to find the bank most suitable for your needs, read the full guide here: Top Banks in Spain for Non-Residents

Requirements for Getting a Mortgage in Spain

Spanish banks evaluate several factors before approving your mortgage application.

1. What Banks Assess

• Income: You must prove a stable, sufficient income. Most banks require your mortgage payment to stay below 30% of your monthly income.
• Debt ratio: Existing debts reduce your borrowing capacity. Banks calculate your total debt-to-income ratio.
• Employment: Permanent contracts are preferred. Self-employed applicants need at least two years of tax returns.
• Documentation for foreigners: Non-residents provide a passport, proof of income, tax returns, bank statements, and sometimes a Spanish NIE number.

2. Non-Resident Rules in Spain

Non-residents face stricter conditions. LTV is capped at 70%. Interest rates are slightly higher. Banks may require life insurance and home insurance as conditions of approval.

Some banks refuse applications from non-EU citizens. Others specialise in expat mortgages and welcome international buyers.

Step-by-Step Process to Apply for a Mortgage in Spain

Applying for a mortgage in Spain involves several stages. Here is the process:

1. Bank Pre-Approval

Contact banks or a mortgage broker to get pre-approved. Pre-approval shows sellers you are a serious buyer. It also helps you understand your budget.

2. Documentation

Gather required documents:

• Proof of identity (passport, NIE)
• Proof of income (payslips, tax returns)
• Bank statements (last 3 to 6 months)
• Employment contract
• Details of the property you want to buy

3. Property Valuation

The bank commissions an independent valuation. This confirms the property is worth the purchase price. The valuation affects your LTV and loan amount.

4. Final Offer from Lender

Once approved, the bank issues a formal mortgage offer. Review the terms carefully. Check the interest rate, fees, repayment schedule, and penalties for early repayment.

5. Signing with a Notary

Spanish mortgages must be signed before a notary. The notary ensures the transaction is legal and transparent. Both parties sign the mortgage deed, which is then registered with the Land Registry.

6. The Role of a Mortgage Broker

Brokers simplify the process. They compare offers from multiple banks, handle paperwork, and negotiate better terms. This is especially valuable for non-residents unfamiliar with Spanish banking.

If you are a resident or non-resident needing a mortgage in Spain, don’t face hurdles alone. Contact Tharros Brokers to get your mortgage process handled smoothly and efficiently.

Consumer Protection and Legal Considerations in Spain

Spanish law protects mortgage borrowers. Understanding your rights is important.

1. Notary Process

All mortgages must be signed before a notary. The notary explains the terms in your language if you are a foreigner. This ensures you understand your obligations.

2. Bank Transparency

Spanish banks must disclose all fees, interest rates, and charges upfront. You receive a binding offer at least 10 days before signing. This gives you time to review and compare.

3. Euribor Influence

Variable-rate mortgages are tied to Euribor. When Euribor changes, your payment adjusts. Banks must clearly explain how this works.

Spanish law also includes a mortgage floor clause (clausula suelo), which sets a minimum interest rate. This protects banks but can disadvantage borrowers. Many older mortgages included unfair floor clauses, which were later ruled illegal.

Final Advice for Buyers in Spain

Choosing between mortgage vs loan depends on your goal. A mortgage is the right choice for buying a home. A loan is suitable for smaller expenses linked to the purchase. Understanding the difference protects your budget and reduces long-term risks.

If you plan to buy a property in Spain or need expert guidance on home financing, the right support helps you secure the best conditions.

Get Expert Mortgage Advice in Spain

Looking for the right mortgage in Spain? Whether you’re a foreigner or a resident, Tharros Brokers provides professional guidance to find the best mortgage solutions for your property.

We specialise in helping expats and non-residents navigate Spanish property finance, making the process smooth, fast, and transparent. Start your mortgage journey today and secure the ideal financing for your dream home in Spain.

Contact Us today to discuss your mortgage options and get personalised support from our expert team.

FAQs About Mortgage vs Loan