To re-mortgage in Spain, as anywhere, is to change the basic conditions of your mortgage. These can include the amount, period of loan, interest rate paid and the type of repayment schedule.
The reasons for re-mortgaging are many, including raising more finance and reducing monthly repayments.
In order to change one or a combination of the conditions there are two basic formulas available to borrowers in Spain.
1. Subrogation, (modification, amplification) and cancelling and reopening.
In addition to the changes to your mortgage conditions, banks might insist on changing the number of titleholders and size of the security.
A variety of processes are in place to achieve this change.
Subrogation, this is when a new bank bids for your mortgage by improving the conditions to such a degree that your current mortgage provider does not want to engage in a bidding war and allows you to change banks.
When possible subrogation is the more cost effective way of improving your conditions. If the “remortgage” is limited to improving the interest rate. The costs associated include, notary fees and land registry fee, there will also be subrogation penalty fee of normally 0.5% payable to your bank and finally an opening commission payable to the new bank.
Often banks will have special offer in order to attract new clients by inviting clients to subrogate their mortgage in exchange for assuming the costs of change. It is important to look closely at the new conditions. Clever marketing can mean that your mortgage conditions will be substantially improved during the first year, encouraging you to change, only to find out that in subsequent years the rate is linked to a series of products that result in a higher monthly spend.
Technically, in order to subrogate a mortgage the amount and the period of the loan must be respected. However, it is possible to arrange a modification and amplification of the mortgage in the same act.
In this case there will be additional costs associated and you will also be liable to pay stamp duty on any increase in the amount of the mortgage.
Subrogations will only be accepted after a rigorous study of your economic situation and your guarantee but above you will have to demonstrate, at least, that the last three mortgage payments have been paid correctly. No bank will consider subrogating your mortgage if you have any history of late payment.
2. Cancel your current mortgage and open a new mortgage.
This option will be more expensive as you will have a series of costs including, cancellation penalty normally 1% of amount pending, registry cancellation fee, a new bank opening fee, Notary and land registry fees in order to inscribe the mortgage and stamp duty on the amount of the loan.
If you are cancelling a current mortgage in order to open a bigger mortgage it is important to remember two essential factors. Any increase in mortgage amount will have to be justified and any increase will have to be covered by your guarantee. Hopefully your guarantee will have increase in value, however it is possible that you will have to include an addition guarantee in order to secure a bigger mortgage.
Once again banks will only entertain a new mortgage after rigorously studying your economic situation and your guarantee. As before you will have to provide three mortgage payments in order to prove good payment history.