When we talk about mortgages, we think directly about the expense involved in paying the loan that the bank grants us. But when it comes to surrogacy you have to think about savings. For that, we must understand that there are multiple variables that can, at a given moment, affect our mortgage and also our pocket. These include cancellation, subrogation, and novation.
The first two influence the modus operandi to change the bank mortgage. In Spain there is still not much tradition in this regard, but in countries like the US or the UK very few people 'marry' with the bank and citizens look for all the options that help them pay less on their mortgage.
How are subrogation and cancellation different?
Both with subrogation and with cancellation or novation we are always referring to a modification in the conditions of the mortgage. In the case of subrogation and cancellation, this modification would be made by changing the mortgage loan from one bank to another. And if we were to talk about novation, the conditions would change within the same banking entity. This is one of the main discrepancies.
But, now, how are subrogation and cancellation different? The first thing to keep in mind is that there are two ways to subrogate: by changing the creditor and by changing the debtor. In this case, since it is a change of bank, it would be a change of creditor. If we were talking about a change in the mortgage holder, we would refer to a change in the debtor.
So, when requesting a subrogation due to a change of creditor and cancellation of the mortgage, only the conditions of the transfer of the entity mortgage would change.
In subrogation due to a change of creditor, the client has a debt with the initial bank that becomes exactly the same with the new bank. What is it done for then? It depends on what the bank offers: pay a lower installment in more years, increase the loan payment term, change the type of mortgage from variable to fixed or vice versa, eliminate abusive clauses such as the floor clause, stop having links with the bank or not pay commissions for cancellation. In addition, in this case, it is the new entity that assumes most of the operation costs and not the client.
With the cancellation of the mortgage, the first thing the user does is repay the mortgage at their initial bank. In other words, he finishes paying the mortgage loan he had requested so that they give him a new one at another bank. However, in this case, it is the user who assumes the expenses as if starting another mortgage: notary fees, Tax on Documented Legal Acts (IAJD), and opening commission, among others. Typically this management is carried out when the bank does not grant the subrogation or when the client is only interested in extending the repayment term.
When are we interested in changing the bank mortgage?
Now comes the crux of the matter: when are we interested in changing the bank mortgage? When we have been in the same bank for a few years and we see that interest rates have dropped and that the conditions offered for new mortgages are better. In this way, we can save a good amount of money.
Another good moment is when, with a variable mortgage whose interest rates depend on the Euribor, we see that this indicator marks an upward trend in the following months. So, changing a variable mortgage to a fixed one with affordable and stable interest rates would help us save in the medium/long term.
