It seems that when we take out a mortgage loan we have no choice but to assume the conditions signed throughout the life of the debt, but in reality this is not the case.
We all have negotiation capacity and if we know how to play our cards well we can achieve changes in the agreed conditions that are favorable for us. This is what is known as novation, but before considering it you should know the expenses of novation of the mortgage to know if it compensates you or not.
What is a novation in the mortgage?
Let’s start at the beginning, making an approach to the concept of novation.
With this name we refer to any change in the conditions agreed in a mortgage loan. Here you can give many possibilities:
- Increase capital to be able to access new economic resources.
- Modify the payment term.
- Change the benchmark.
- Add or remove guarantees.
How much does it cost to change the mortgage?
As you have already imagined, if we make a change in the contract that we have originally signed with our bank we will have to assume the series of expenses of novation of the mortgage.
Until recently, it was quite common to establish a commission of between 0.1% and 1% in mortgage loan contracts for making changes to the contract. But among the changes produced by the new Mortgage Law is the prohibition of charging commission for the novation.
Changes in public deed
Small modifications as an adjustment of interest rates can be left reflected in a private document. But, in most cases, the changes made must be manifested in the corresponding public deed of the mortgage loan. This implies that you have to go to the Notary.
In this case, following the guidelines set by the Supreme Court, as a client you are only obliged to pay 50% of the cost of the notary.
Other associated costs
In addition to the above, it is also possible that costs related to the Land Registry or even the appraisal of the home may have to be met if necessary.
Is it worth doing the novation?
We have just seen that the novation expenses of the mortgage can vary greatly depending on the changes we are going to make. The average price is usually around USD 1,000.
It is true that it implies an extra cost, but we must not lose sight of the advantages that we will obtain when making the novation. If it is going to cost us about USD 1,200 but with the changes introduced we are going to save about USD 300 a year in the remaining 10 years of mortgage, it is clear that it compensates us.
Choose the best option for your economy
If your mortgage conditions are not the best for you at this time, you have several options that you can consider. You could opt for the novation, choose the subrogation and take your loan to another bank that offers you better conditions, or think of alternatives to make your house profitable, such as renting a room.
If you need help to manage your domestic economy, it is best to let yourself be advised by specialists who indicate the best way to organize your financial resources to get the most out of them.