What are the TAE (Tasa Anual Equivalente) or Equivalent Annual Rate and the TIN (Tipo de Interés Nominal) or Nominal Interest Rate of a loan?

If you are going to apply for a home loan, as well as the requirements for applying for the mortgage, there are two concepts you need to consider. It is essential you know what the TAE and TIN are to be able to take out a mortgage with good conditions. If you don’t know what they are and the differences between them, read on.

What do TIN and TAE mean?

In general terms, you might say that the TIN and TAE (equivalent annual rate and nominal interest rate) are two types of interest present in any mortgage. We will now define them so you understand exactly what these indicators are before you take out a mortgage, to ensure your financial health.

• TAE stands for Tasa Anual Equivalente or Equivalent Annual Rate Basically, this represents different interest rates to standardise the different conditions and types of loan. Certain factors are considered to calculate it, such as payment frequency, some costs of the operation and bank fees.
• TIN (Tipo de Interés Nominal) or Nominal Interest Rate This is a fixed percentage that does not include payment frequency or fees. In other words, it is a fixed sum payable to the bank for the money lent.

The TAE (Tasa Anual Equivalente) or Equivalent Annual Rate and TIN (Tipo de Interés Nominal) or Nominal Interest Rate of a loan

These two interest rates, as you will see now, are components of all mortgages, and they will both be in force for the life of the loan. The Bank of Spain even requires all banks in Spain to publish the current TAE. 

That’s why banks have an online calculator where you can see these percentages for yourself. Many lenders, when offering mortgages, say that the TIN is 0% and this is where a lot of users go wrong, thinking that the loan will be totally free (that is, interest free). However, having this interest rate low is an advantage for the customer because the costs will not be so high when taking out a mortgage to buy a home.

So, you might say that the TAE is the percentage to pay attention to when taking out your mortgage, because when you see this figure, you will see the real cost of taking out a bank loan to buy your home.

What is the difference between TIN and TAE on a loan?

You are sure to have wondered what the TAE and TIN are at one time or another. To understand these concepts without any doubts, the differences between them are crucial to be able to identify them properly in any type of loan you take out, particularly when you apply for a mortgage.

These are some of the key points for distinguishing between these concepts:

1. When you apply for a mortgage, pay attention to the TAE, particularly when you are going to compare different loans and their conditions.
2. The TIN is just for informational purposes and tells you what it is going to cost you to take out the loan.
3. When it comes to personal loans as opposed to mortgages, the value of these two percentages tends to be much higher in the former than the latter, so take care to read the small print.
4. In a mortgage, the TIN is usually printed in bigger font than the TAE, which usually goes unnoticed (although it is more important).

How are the TIN and the TAE calculated?

One of the main questions users have about these two terms is how they are calculated. 

When it comes to calculating the TAE, they consider the nominal interest rate (r) expressed as one and the payment frequency (f). The formula is as follows:

• TAE = (1 + r/f)f-1

In contrast, the TIN formula is as follows:

• TIN= Euribor + differential

In other words, the TIN is obtained by adding the Euribor plus the differential applied by the bank.

As you can see, when applying for a mortgage, it is essential you know both these concepts. They will determine the value of your mortgage, because the percentage will mean you pay more or less. Pay close attention to these figures and, before taking out a loan, always compare the different options that exist on the market, since, believe it or not, the differences can be quite enormous and you may even save a huge amount of money compared to another option that you had previously considered.