Mortgage repayment periods are usually long. During that time, many circumstances may arise that make it advisable to change its conditions. The procedure to modify these conditions is called mortgage novation.
The owner of the mortgage must take the step to request the novation. The goal is to save money or obtain more payment facilities. However, the bank can accept or reject it or admit only some of the requested changes.
What can get modified in a mortgage novation?
A mortgage novation facilitates a whole series of changes:
• Interest rates: allows you to negotiate a new differential, go from a variable to a fixed interest rate or vice versa, or modify the reference rate linked to the mortgage.
• Pending capital. It can be increased or reduced to obtain liquidity or redeem capital.
• Repayment period: it can get extended or shortened whether we want to reduce or increase the instalment amount.
• Modify guarantees: guarantees can be released, guarantors or holders can be removed or added, we can provide another property as a guarantee, etc.
• Settlement system: a novation allows modifying the instalment system or including a grace period in which we don't pay instalments or only pay interests.
• Commissions and related expenses: eliminate abusive clauses, commissions or products contracted at the time to improve the conditions of the loan, such as insurance, credit cards, etc.
What expenses do mortgage novation entail?
The change in the conditions of the mortgage entails a series of expenses:
• Generally, the bank can apply a commission of up to 1% of the capital pending amortization.
• If there is a change in interest rates, the commission will be a maximum of 0.15% on the outstanding amount if the mortgage began after 2019, being the novation within the first three years. After that period, there will be no commission. Regarding the rest of the cases, it can reach up to 1% of the outstanding capital.
• When a capital increase is requested, the bank requests a new property valuation, which the mortgage holder must pay.
Nevertheless, the bank assumes the Tax on Documented Legal Acts (IAJD), the notary fees, and the registration in the Property Registry.
When is a mortgage novation recommended, and how is it done?
A mortgage novation is advisable or necessary in very different circumstances:
• If there is an improvement in the household economy, redeeming the mortgage allows you to save money on interest.
• In the case of financial difficulties, it is possible to pay less per month by changing the conditions of the mortgage.
• If liquidity is needed, it can be obtained with novation.
• In case of death, separation or change of owner.
It is possible to request a novation only in the case of your first home or habitual residence, and you must be up to date with the payments.
Regarding the procedure, you must request the mortgage novation from the bank, which will analyze it to decide whether to accept it, reject it or ask to negotiate at some point. If there is an agreement, a new public deed must be signed before a notary and registered in the Property Registry.
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