Is it worth changing the mortgage from the bank?
One of the questions frequently asked by homeowners and business premises owners is whether it is worth changing the mortgage to another bank, as this action can represent a significant saving for their finances.
It is always necessary to assess the current situation and other possible factors to evaluate whether it is worth changing the mortgage to another bank. And for this reason, we present them to you below.
Switching a mortgage to another bank
The points to consider when assessing whether it is worth changing the mortgage from a bank with an active mortgage deed are the following:
1. The time it takes you to pay the mortgage
The Colegio de Registradores indicates that the average mortgage holding period is 17.7 years. This suggests a sufficiently long term for fluctuations in the mortgage market to change, making it worthwhile to switch the mortgage to another bank when better conditions than those previously contracted appear.
2. Taking your mortgage into account
Assess the type of interest and the mortgage payment you make. Check if the current interest rates are lower than those of your mortgage and if the change represents a significant saving in monthly payments.
To do this:
2.1 Analyse the type of interest: fixed, variable or mixed
It is likely that interest rates have fallen since you took out the mortgage, so the annual savings could be considerable in your case.
The euribor is the reference value to consider. When it is low, it is the ideal time to take out variable rate mortgages, while if it rises, it is a good idea to consider a fixed mortgage.
In the following figure you can see the euribor, which is the main index that determines mortgage interest rates.
However, you should know that in previous historical moments, mortgage financing has been considerably higher, with specific periods since the 80s when the annual interest rate of a mortgage reached rates of 15% per year. For this reason, whenever possible, it is safer to have the mortgage on your main residence with a fixed interest rate.
Learn more about interest rates and their effects at this link:
2.2 Check the outstanding mortgage balance and the number of years you have left to pay.
The greater the capital and the term to be paid, the more sense it makes to look for a better offer. Even so, it is always possible to find savings by switching mortgages, even if there are only a few years left to finish paying off the mortgage.
2.3 Evaluates switching costs
Control the possible subrogation fees or others such as early repayments, mortgage notary expenses, registration and new appraisal. Even so, you should know that if you achieve a reasonable reduction in your interest rate, it is normal that changing to a mortgage with less interest is profitable for the person who switches.
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3. Consider the option of renewing the mortgage with new conditions with the same bank
Before transferring, try to negotiate better conditions with your current bank to avoid incurring extra costs. If the agreements are beneficial for you, you will be able to carry out a mortgage novation deed and obtain new advantages in the payment.
4. Consider your advantages so that they improve your conditions
Furthermore, you should consider the advantages for a bank in making the switch with you. These include:
- Having a good payment history: being up to date with your payments allows you to improve the conditions offered to you.
- Subrogation involves a new valuation of the property; if the value of the home has increased, you may be able to access more favourable conditions.
- Take into account your job stability and financial solvency.
5. Always compare different binding offers from various banks
Study whether it is worth changing the mortgage from the bank when the different financial institutions have given you the formal document that reflects the exact conditions of the mortgage loan they are willing to grant.
With this document, known as FEIN, the bank is obliged to maintain these conditions for a determined period. Thus, you will be able to compare the different offers and reject the one that does not interest you.
Is it worth changing the mortgage to another bank?
This answer must be evaluated on a case-by-case basis.
- Add up the total expenses related to the mortgage change and related penalties along with the procedures to be carried out for the subrogation.
- Subtract from this sum the economic savings or benefit you obtain with the new conditions that have been offered to you.
- If the result is positive (the savings exceed the expenses), it is worth changing the mortgage to another bank.
Conclusion
If you still have doubts when you go to make a novation or mortgage subrogation deed, we invite you to contact our notary office in Barcelona. We are specialists in this procedure and can resolve all your related doubts, once you have decided which mortgage you want. We will be happy to assist you at our contact email: bcn@jlanotarios.com.
