What is the TIN and the TAE of a mortgage?

11 October, 2023 | M Aparicio

At Hipotecas Plus, we know that buying a home is one of the most exciting and significant moments in a person’s life.

We are also very aware that taking out a mortgage means stepping into a new world full of terms and concepts that we might not have encountered before, but with which it’s important to become familiar. This will make it easier to make informed decisions.

In this article, we will try to explain in a detailed and straightforward manner what the TIN and the TAE of a mortgage are.

We will discuss both concepts and the advantages of one over the other. We will conclude with a practical comparison between two mortgages.

The first thing you should look for in a mortgage offer

The first things you’ll find in mortgage offers, both at physical bank branches and on their online platforms, are the terms TIN and TAE, and they’ll likely be presented together.

But, what exactly are the TIN and TAE of a mortgage, and why is it so important to pay close attention to their figures?

We know that when a bank grants us a mortgage, they charge us interest. These interests are represented by certain percentages. These percentages are referred to as TIN and TAE.

Let’s clearly differentiate between TIN and TAE

TIN: This is an acronym for Tipo de Interés Nominal, which translates to Nominal Interest Rate. The TIN does not include possible bank fees and expenses associated with a mortgageTAE: This stands for Tasa Anual Equivalente, or Annual Equivalent Rate in English.

The TAE reflects the cost of the loan but includes commissions and expenses derived from the granting of the mortgage loan and also takes into account the frequency of payments.

Most likely, and we shouldn’t, we won’t settle for the first mortgage offer we come across, and therefore we should make our calculations and compare the different mortgages we might consider. Thus, we must understand that the TAE is much more important than the TIN when comparing mortgage loans.

A lower TIN does not mean a mortgage is cheaper

It can easily happen that, between two mortgages, one has a lower TIN than the other. However, this second mortgage, despite having a higher TIN than the first, might end up being less expensive overall.

This is the case because the second mortgage might have a lower TAE than the first, even with its higher TIN. Since the TAE also considers expenses and commissions, figures not taken into account by the TIN, if the TAE of the second mortgage is lower, it ultimately turns out to be more advantageous or cheaper.

These expenses and commissions, which are not reflected in the TIN, could be, for instance, insurances like home, life, or payment protection insurances, opening fees, or other costs and commissions that are never included in the TIN, and are very important to consider.

The TAE reflects the real or effective cost of the mortgage.

Therefore, we should consider the TAE as the real or effective cost of the mortgage, and not the TIN, because the TAE is essentially the TIN plus commissions, such as cancellation or amortization fees, plus associated expenses, insurance… and also the frequency of payments, that is, whether they are monthly, quarterly, semi-annual, etc.

In conclusion, the TAE is much more comprehensive than the TIN and truly represents what you will pay for the mortgage. The TAE is a crucial percentage when comparing two or more mortgages.

The TIN and TAE are official and can be found in multiple financial products.

The TIN and TAE are established by the Bank of Spain and are therefore official. They are not terms exclusively linked to mortgages but are used in many financial products such as personal loans, deposits, investments, credits, and of course, mortgage loans.

We should also be aware, to avoid confusion, that the TAE is always annual, as its very name indicates: Annual Equivalent Rate. However, the TIN can be monthly, bimonthly, quarterly, semi-annual, or annual.

The TAE is always annual, the TIN may not be.

It’s crucial to know the time period associated with the TIN because, for example, if you are told you will pay a 3% Monthly TIN for a loan, it translates to a 36% Annual TIN. Therefore, for every 100 € loan, you won’t be paying 3 €, but 36 € per year, which signifies a colossal difference.

If nothing is specified, usually the TIN is annual, but it’s worth ensuring that this is the case, especially when we are informed about the interest rates to be paid for credit lines granted through cards.

So, it’s clear that the TAE is the fundamental percentage we must focus on when comparing mortgage offers. We should also know that the TAE does not reflect absolutely all the expenses that a mortgage entails, since notary fees or other charges that must be paid to third parties are excluded from the rate.

However, the TAE provides us with the most information concerning the real or effective cost of the mortgage loan. In conclusion, it’s essential to focus on the TAE, as this allows us to compare two or more mortgages, placing them in the same temporal scenario and considering all conditions.

The law requires banks to clearly inform you of the TAE.

Moreover, banking legislation is very meticulous in this regard and mandates banks to provide clear information to their customers or potential clients, highlighting the TAE in various places, from contracts to the advertising they provide and all preliminary information before signing that might reach the consumer.

The TIN is merely an informational descriptor, but it’s not very useful to the client, as it doesn’t reflect important data which, as we’ve mentioned, are included in the TAE, such as commissions, terms, and expenses. Therefore, it provides a clearer, more precise, and accurate view of how much the mortgage will cost us.

Practical example on TIN and TAE

We’ve come to the best part; the practical example.

In order to compare two mortgages based on their TAE (Annual Equivalent Rate) and TIN (Nominal Interest Rate), we first need to know the specific details of each mortgage.

Mortgage A:

• TIN ? 2.5%

• Initial fees: €1,000

• Annual insurance: €2,500

• Term: 30 years

• TAE ? 6.33%

• Estimated monthly installment (for a loan of €100,000): Approximately €395.12

• Monthly payment for tied-in products: €208.33

• Total monthly payments: €603.45

Mortgage B:

• TIN ? 4.0%

• Initial fees: €500

• Annual insurance: €200

• Term: 30 years • TAE ? 4.42%

• Estimated monthly installment (for a loan of €100,000): Approximately €477.42

• Monthly payment for tied-in products: €16.67

• Total monthly payments: €494.09

Ara, avaluem ambdues hipoteques:

Hipoteca A:

• TIN més baix (2,5%) que resulta en una quota mensual estimada més baixa abans de considerar els productes vinculats.

• TAE alta (6,33%) a causa de les comissions inicials i un assegurança anual costós, la qual cosa augmenta el cost total del préstec al llarg del temps.

• Suma més alta de pagaments mensuals (603,45 €).

Mortgage B:

• Reasonably lower APR (4.42%) compared to Mortgage A, despite having a much higher nominal interest rate (4%) than Mortgage A (2.5%).

• Lower insurance costs and initial fees, which reduces the overall loan cost.

• Lower monthly payment sum (494.09 €) compared to Mortgage A.

Conclusions on both mortgages:

Mortgage B seems to be a more attractive option in this example, as it has a lower APR compared to Mortgage A, despite having a considerably higher nominal interest rate. The lower insurance costs and initial commissions also make it more economical over the term.

Additionally, the total monthly payments are lower, which might make managing your monthly budget easier.

However, choosing between both mortgages will depend on your financial capacity and personal preferences.

When it comes to insurances, it’s very beneficial to compare them considering both their price and their coverage collectively. The insurances for Mortgage B are more affordable, and in that case, it’s essential to assess if they cover everything you want to be guaranteed.

You’ll need to carefully consider how much you can afford to pay monthly and which option best fits your long-term financial needs and goals. You should also think about the total monthly cost you can or want to assume, keeping in mind that this total monthly payment consists of the mortgage installment plus the monthly expenses of the linked products contracted.

You shouldn’t just focus on the TIN nominal interest rate and TAE.

Apart from the TIN nominal interest rate and TAE, you should also consider other factors, such as the term of the mortgages, the resulting monthly installment, and especially focus on your personal and familial financial and economic needs, in order to determine which option is best for you.

If you notice, Mortgage B has a term that’s 5 years shorter than Mortgage A. The term is also an essential variable to keep in mind. That’s because the shorter the duration of the mortgage debt, the more beneficial it will be for us as consumers.

But it’s also very important to consider the monthly installment resulting from each mortgage. So, the installment for Mortgage B is almost 100 euros higher than for Mortgage A.

That’s where we need to do our math and weigh if it makes sense for us to pay an extra 100€ per month. That is, whether this higher amount in Mortgage B can be comfortably borne according to our income and our financial outlook.

If we can handle the higher installment, in return, we’ll end up paying less in interest and also finish our mortgage five years earlier. In other words, we can benefit from the favorable terms of Mortgage B.

However, if we prefer or need a lower monthly payment, we might lean towards Mortgage A.

Conclusions on what TIN and TAE mean for a mortgage:

Before signing a mortgage, we must clearly understand financial concepts such as the TIN (Nominal Interest Rate) and TAE (Annual Percentage Rate). When comparing mortgage offers, it’s crucial to weigh the TAE against the TIN, as the TAE reflects the true or effective cost of the mortgage, encompassing associated fees and expenses.

In addition to considering both the TIN and TAE when evaluating mortgage options, it’s essential to factor in other critical variables like the mortgage term and monthly installment.

Equally important is a careful assessment of our personal and familial financial situation. The goal is to ensure that we can comfortably handle the mortgage payment, aiming for successful financial management over time.

Here, the Bank of Spain also explains what the TIN and TAE are.