The average duration of a mortgage in Spain is 24 years, according to the latest data from the National Statistics Institute (INE). During this time, the economic situation of the loan holders may change and they may consider modifying the conditions of the signed mortgage to make them more favorable.
This has been taken into account in recent months as a result of the rate hike initiated by the European Central Bank (ECB). This decision directly affects the Euribor, the main reference index for mortgages with a variable rate. This same Thursday, the 12-month Euribor exceeded 3.8%, an unprecedented level since December 2008. In February, the monthly data exceeded 3.5%, according to the Bank of Spain.
Thus, for example, the holders of a variable mortgage with a rate of Euribor plus 1% have gone from paying 1% in interest in just one year – the Euribor was negative – to almost 5% after the last increase in the index. reference.
Mortgage holders notice this increase when updating their installments, which may lead many to consider requesting a change in the conditions. Extending the maturity period, changing the interest rate -fixed to variable- or extending the amount borrowed are some of the changes that can be requested. Subrogation or novation are two alternatives to carry out.
with the same entity
The main difference between the novation and subrogation of a mortgage is the entity with which it is signed. The novation is carried out when the same entity offers a change of conditions, while the subrogation implies a change of entity. When choosing what to do to combat the rise in interest rates, holders must take into account the expenses associated with each operation.
In the case of novation, the Bank of Spain specifies that the entity may demand a commission for the change in conditions, provided that it has been established in the original contract, which is usually a percentage of the amount of the loan pending payment. However, this commission is limited and cannot exceed 2%.
If the novation is applied to change the maturity term, the commission may not exceed 0.1% of the capital pending amortization. And for the novation of the applicable interest rate from variable to fixed, the commission may not exceed 0.15% during the first three years of the contract. Of course, these limits are set in the Mortgage Law approved in June 2019. Mortgages signed before are subject to the conditions established in the current law when it was formalized.
Signing a mortgage with another bank
The other option is subrogation, but the Bank of Spain affirms that “the expenses associated with the subrogation of a mortgage are usually higher than those of novation, but lower than those of formalizing a new mortgage.”
In the first place, because, when changing entities, a cancellation commission must be paid to the old entity if it was so signed. This amount will rise to 0.5% during the first five years and 0.25% thereafter, as explained by Claimant.
Formalization before a notary
In any case, the two operations are common to be carried out before a notary, who must offer personal and free advice to the client. When choosing, the Bank of Spain recommends analyzing all situations carefully and remember that, for example, “a lower rate, but with a longer repayment period, may lead you to pay a higher total interest rate for the contract as a whole.” ” .