What is TAE?
TAE is a term that corresponds to a few initials that mean ‘Equivalent Annual Valuation’. It is used as it helps to compare different loans offers, although this is an only one way of doing the comparison, since, at the time of choosing, it is necessary to bear other aspects in mind. In case of the mortgages, it is going to indicate us the real interest that we have to pay.
TAE is a percentage. This percentage calculates by means of a mathematical, ready formula as the regulation of the Spanish Bank, which includes the interest rate (or nominal interest), the opening commission (if it is) and the number of years of the loan.
We are going to allow to meet TAE which is going to be the effective or real cost of the operation in an annual period. It is a reference orientativa of the real cost of the mortgage in case the interest rates that exist at the time of formalizing the loan were not changing during the whole life of the loan, thing that does not happen with the loans of variable interest. That's why TAE is more useful in case of the loans to fixed interest than in case of those of variable interest. In the latter case, this valuation one has to do like a reference, since it will change with the years whenever the interest rates are updated.
TAE, in addition to in the mortgages and in the personal loans, is used also to calculate the yield in products I save. If we see TAE announced in all the offers of mortgage, personal loans and products saving it is because the Spanish Bank has to the entities to report on her. A common criterion wants be provided this way to the users at the time of comparing different offers.