Novation or change in conditions

During the life of your mortgage, you may ask your bank to change the terms and conditions initially agreed. After studying your creditworthiness and ensuring that the collateral remains the same, the bank may or may not agree to this.

Any modification of the initial terms and conditions of your mortgage must be documented in a public deed and recorded in the Land Registry. 

Law 2/1994 of 30 March (in Spanish) Abre en ventana nuevamakes loans more flexible and allows their terms and conditions to be modified via Novation. If both parties agree, under this Law they
can make any of the following changes by documenting them in a public deed: 

  • Increase or decrease of the capital amount.
  • Modification of the term.
  • Modification of the
  • interest rate conditions initially agreed or currently in force, such as the ordinary interest rate, late payment interest or clauses on the variability of the interest rate.
  • Modification of the repayment method or system and of any other financial conditions..
  • Provision or modification of personal guarantees.

This Law also provides for cases where you can obtain a reduction in notary and registration fees and exemptions from paying stamp duty. These are as follows:

  • Modification of the interest rate conditions initially agreed or currently in force, such as the ordinary interest rate, late payment interest or clauses on the variability of the interest rate.
  • Modification of the term.

Regional governments regulate and manage stamp duty, so you need to be aware of the legislation of each regional tax authority.

Banks may charge a fee for mortgage novation which will generally have been stipulated in the initial agreement. However, in the case of novation of the maturity date, the fee is limited by law and may not exceed 0.1% of the outstanding capital.

There is a modification called subrogation of the debtor whereby the borrower is changed. The current debtor is replaced, provided that the bank has given its specific or tacit authorisation, by a new borrower who assumes the obligations and rights of the previous borrower; further changes to the terms and conditions initially agreed can also be added.

For example, if you buy a property which has already been mortgaged and are interested in the mortgage conditions, instead of applying for a new mortgage, you may ask the bank to agree to a change of borrower.

The bank may you a fee for the formalities involved in this change.

If the novation takes place after 16 June 2019, i.e. the date Law 5/2019 entered into force, it must comply with that law's provisions on pre-contractual information (the lender must inform the borrower of any changes to the initial contract) and on the new distribution of costs between the bank and the customer, as established in Article 14 of the law.

 

 

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