Renegotiating your Spanish Mortgage
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Renegotiating your Spanish Mortgage

Home >> Spanish Mortgages >> Renegotiating your Spanish Mortgage

Thursday, 23 Oct 2008

Perhaps you already have a mortgage loan but are paying higher interest on it than you would had you taken it out today. In this situation, you have two refinancing options: novation and subrogation.

Novation allows the borrower to renegotiate the interest rate conditions and, where applicable, the term of the loan with his or her lender.

Subrogation allows the borrower to change lenders, substituting his or her current lender with one that can offer him or her better financial conditions.

Any natural or legal person who holds a mortgage loan (whether fixed-rate or adjustable-rate) can make either of these changes, regardless of the date on which the loan was closed and whether or not the possibility of early redemption is explicitly stated in the deed.

A subrogation, or assignment, agreement may only be used to negotiate changes in the conditions governing the initially agreed or current ordinary and late-payment interest rates. With loans closed as of 27th April 2003, changes may be negotiated in the conditions governing the initially agreed or current ordinary and late-payment interest rates, the loan's term may be extended or both.

The benefits granted to mortgage holders under current law lie in the substantial decrease in the costs involved in changing lenders.

Spanish Mortgage Savings

Savings include:

Exemption from stamp duty.
Reduction in notary and registry fees.
Limit on early redemption penalties with both adjustable-rate mortgages and fixed-rate mortgages that are converted to adjustable-rate ones. (This limit is 2.5%, although some lenders breach this requirement).
The agreed early redemption penalty may be charged subject to a limit of 1% for adjustable-rate mortgages closed prior to 27th April 2003 or 0.5% for adjustable-rate mortgages closed from 27th April 2003 on.
When early redemption was agreed but no penalty was established, the lender shall not be entitled to collect any amount whatsoever for this reason.

With novations undertaken to extend the term of a loan closed on or after 27th April 2003, the lender may not collect more than 0.1% of the outstanding balance on the loan as a loan amendment fee.

Neither novation nor subrogation can be used to change the outstanding balance on the loan. Should you wish to apply for additional financing, you will need to do so through a separate legal document to increase the amount.

It is advisable to take the following steps before undertaking a subrogation:

First, try to negotiate an interest rate adjustment with your current lender. It may offer you a novation (whereby any amendment would affect the rest of the life of the loan) or a temporary interest rate lock-in agreement (whereby the new interest rate will remain in force for a given period of time, usually one year).
Should you not obtain a satisfactory response, go to another lender and enquire about the conditions it can offer you to refinance your mortgage.
Compare the amount you would save on interest if you were to refinance through the new institution with the cost of making the change (i.e. notary fees, registry fees, early redemption charges, origination fee, valuation fee and processing fees).
Before taking the decision, seek advice on the amount of the costs to be paid, either at your current lender (in case of novation) or at the lender with which you would like to refinance (in case of subrogation).
If you decide you would like to switch lenders, the new lender must provide you with a binding offer. (It is usually as of this moment that you will need to pay any valuation and registry verification costs.) Remember, these offers are only binding on the lender that makes them and never on you.
The lender making the offer will handle of the paperwork involved in making the change, provided you accept it.