Remortgaging in Spain: Subrogación and Novación

Three different things

English lumps all of this under "remortgaging". Spanish distinguishes between them, and the distinction is practical rather than pedantic.

• Subrogación de acreedor — moving your existing mortgage to a different lender. The loan transfers; the new bank takes over the debt on new terms.
• Novación — modifying the mortgage you already have, with your existing lender. The rate, the term or other conditions change; the bank does not.
• A new mortgage — cancelling the old one and taking out a fresh loan, which is what you need if you want to borrow more than you currently owe, or to mortgage a property you own outright.

Subrogación: moving lender

You approach another bank, it assesses you and the property, and if it agrees it takes over the loan. Your existing lender has a right to counter-offer to retain you, which is worth knowing — the threat of moving sometimes produces the improvement you wanted without the move.

You will be underwritten again, as a new applicant. That means the full document pack, and a new valuation. If your circumstances have improved since you first borrowed, or you have paid the balance down substantially, this can produce a materially better margin.

Costs are lighter than a fresh mortgage — there is no transfer tax, and the arrangement is designed to be cheaper than starting over — but there is a new valuation, notary and registry work, and possibly a fee from the outgoing lender. Spanish law caps early repayment and subrogation compensation, with different caps for fixed and variable loans and depending on how far into the term you are. Get the exact figure from your current contract before you start.

Novación: renegotiating in place

Simpler, cheaper and less powerful. You are asking your existing bank to change the terms — most commonly to switch from variable to fixed, to extend the term and reduce the payment, or to improve the margin.

There is no new lender to satisfy, so the process is lighter, though the bank may still want an updated valuation and will charge a fee for the modification. The obvious limitation is that you are negotiating with someone who knows you are not currently going anywhere. A concrete offer from another lender changes that conversation considerably.

Equity release and the non-resident question

This is where expectations most often need adjusting. If you own a Spanish property outright, or with a small mortgage, you can in principle borrow against it — but as a non-resident the terms are more restrictive than the equivalent product in the UK or Northern Europe.

Expect the same non-resident loan-to-value band that applies to a purchase: 60–70% of the valuation, less if your income is complex. And expect the bank to ask what the money is for. Spanish lenders are generally comfortable lending against a property for a defined purpose — buying another property, funding a renovation — and considerably less comfortable with an open-ended release of capital. "I would like the equity" is not, on its own, a strong application.

Affordability applies too. Equity in the property does not substitute for income; the bank still needs to see that you can service the new payment from what you earn.

When it is worth doing

The arithmetic is not complicated. Work out the total cost of changing — valuation, notary, registry, any compensation to the outgoing lender, arrangement fees — then work out the annual saving the new terms produce. Divide the first by the second. If the payback is a year or two on a loan you intend to hold for another fifteen, it is obviously worth it. If it is six years and you might sell in four, it is not.

Three situations make it worth checking:

• You took the developer's subrogation offer when you bought off-plan, without comparing it. That is the most common source of an uncompetitive Spanish mortgage.
• You have become a Spanish tax resident since you borrowed. You may now qualify on resident criteria — up to around 80% loan-to-value, longer terms, better pricing — which the non-resident loan you hold does not reflect.
• You are on a variable rate and want certainty, or on a fixed rate set in very different conditions.

We look at existing Spanish mortgages as readily as new purchases, and the first answer is frequently that moving is not worth the cost. That is a useful answer too, and it costs you nothing to get it.