Subrogation of Spanish Mortgages

(In Spain you take over someone else’s loan when buying a property this can provide upfront cost savings. Subrogation can be considered when looking at all possible funding options.)

What is subrogation of a Spanish Loan

What is subrogation of a mortgage in Spain. Basically a Spanish mortgage that is already secured against the property being purchased. In Spain a personal obligation is taken. As is the case with all debts. However it is also linked to the property not the individual. Therefore the bank can agree for the new buyer to take over an existing loan.

What were the benefits of subrogating a loan in Spain

Taking over an existing loan used avoid paying AJD known as Mortgage deed tax. Mortgage deed tax was only payable on inception of a new loan. Subrogation of a loan in Spain. So taking over an existing loan was deemed to be transferring same loan. However to another person not a new loan. From November 2018 however for new mortgages the Banks were instructed to pick up this cost. Benefits of subrogation are therefore reduced.

What are the drawbacks of subrogating an existing Spanish loan

Firstly you will take over the loan on the terms written into its deeds. Because certain elements cannot be changed without the tax becoming payable again. This means if the Spanish Bank does agree to subrogation you will take over that loan on more or less the same basis by which it was granted. This will include the level of capital on the loan, any compulsory products and most likely the remaining term and rate.

Can any changes be made to a subrogated mortgage

Yes the Bank may increase or lower the rate and can make changes to the amount of years. However only if they are inclined to do so. Also without instigating a new loan and making subrogation not possible.

What will definitely cause subrogation to not be possible

If you wish to make any change to the level of mortgage capital then subrogation cannot happen and a new loan must be put in place.

Are Spanish Banks subrogating loans

For many years Banks wanted to subrogate existing loans to keep the mortgage on their books. In current climate most are not currently allowing subrogation for a number of reasons.

Firstly they would rather have the loan redeemed. Secondly the rates offered in the past were much lower than those offered now. Therefore even when they are subrogating they often raise the rate. If compulsory products were not linked the Banks see old loans as less profitable overall. The Spanish Bank has no obligation to offer subrogation. They will still require a full application is made. Moreover it is not an automatic transfer.

Should subrogation of an existing loan in Spain be considered

If a property has an existing mortgage the option of subrogation should always be explored. In order to check its suitability. A good mortgage adviser will do this for you. This can then be measured against what a new product would like. Also whether the Bank will in fact allow subrogation to take place.