Changing the parties to a mortgage loan
At a certain point in your life, for various circumstances, you might be interested in changing the parties to a mortgage loan you arranged with someone else.
For example, with your ex-partner. You bought a house together years back, but now only one of you wants to keep it and continue paying the mortgage.
Under such circumstances it’s normal to consider going to your bank and requesting that the parties to the loan be changed. This can be achieved by novating the loan contract, but you should know that it’s not always possible.
What is a novation?
A novation consists of changing some of the mortgage loan’s terms and conditions after it was arranged. Changing the personal guarantees, i.e. changing the parties to the loan, is one of the possible amendments under Law 2/1994 of 30 March 1994Abre en ventana nueva, provided you reach an agreement with your bank. It must be documented in a public deed.
Is the bank required to change the parties to the loan?
Banks are not required to change the parties to a loan as this amendment is part of their business and risk-taking policy.
By removing from the public deed one of the parties to the mortgage loan contract, the payment guarantees that the bank considered to extend the financing under certain terms and conditions diminish.
Your current credit standing could also be better than when you applied for the mortgage. In any event, to reach an agreement the bank may require further protection, such as an additional party to the loan agreement with a sound credit standing or a guarantee. It could also amend your financing conditions.
Does this change cost anything?
Your bank may charge you a novation fee provided it’s stipulated in the contract. This fee is generally calculated as a percentage of the loan’s outstanding amount.
The bank may also ask you to get the house appraised again to ascertain its up-to-date expected value. In principle, you would have to pay for this appraisal.
What documentation must the bank provide you?
If the contract is ultimately novated, your bank must provide you with the pre-contractual information documents called the European Standardised Information Sheet (ESIS) and the Standardised Warning Sheet (FiAE by its Spanish abbreviation), in addition to the other mandatory pre-contractual information, at least ten calendar days before signing the novation of the contract.
Lastly, you should know that, from then on, the Law regulating real estate credit agreements will apply to your loan contract.