Early redemption

If you want to pay off your mortgage before maturity, you can do, although you will have to compensate your bank for the interest it will no longer earn on the outstanding capital.

If you have a variable-rate mortgage and the early repayment in full is not due to changing banks (early redemption without subrogation), the fee you will have to pay is capped at 1% of the outstanding capital.

For fixed or variable-rate mortgages taken out as from 9 December 2007 by individuals on a residential property or by small companies for the purposes of corporation tax, the bank may only charge for early partial repayment, provided that it was agreed previously, an exit fee and, in certain cases, an early redemption charge (see Articles 7, 8  and 9 of Law 41/2007 (in Spanish)Abre en ventana nueva)

The amount that banks may charge as an exit fee shall not exceed shall not exceed:

  • 0.5% of the capital repaid early, if the early redemption takes place within the first five years of the mortgage term.
  • 0.25% of the capital repaid early, if the early redemption takes place after the first five years of the mortgage term.
  • The amount agreed with the institution, if it is lower than in the above-mentioned cases.

The early redemption charge is governed by the following rules:

  • The entity may not receive any early redemption charge for variable-rate loans which are adjusted every twelve months or at a shorter term.
  • In other cases, the amount of the early redemption charge will be agreed with the institution. However, it may only be charged if redemption means a loss is incurred by the institution, which will usually occur if, when the mortgage is repaid in full, market interest rates are lower than the rates being paid.

 

 

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