Subrogation of Spanish Mortgages

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

What is subrogation of a Spanish Loan

Subrogation is the taking over of a Spanish mortgage that is already secured against the property that is being purchased. In Spain whilst a personal obligation is taken, as is the case with all debts, it is also linked to the property not the individual. This means the bank can agree for the new buyer to take over the existing loan.

What are the benefits of subrogating a loan in Spain

The key advantage of taking over an existing loan is you did avoid paying AJD known as Mortgage deed tax. Mortgage deed tax is only payable on inception of a new loan. If you take over an existing loan it is deemed to be the same loan being transferred to another person not a new loan. From November 2018 however even for new mortgages the Banks have been instructed to pick up this cost.

What are the drawbacks of subrogating an existing Spanish loan

Under the law covering mortgage deed tax and when it is payable, certain elements cannot be changed in a deed without the tax becoming payable again. This means if the Spanish Bank does agree to allow subrogation you will have to 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 if they are inclined to do so 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 so even when they are subrogating they often raise the rate. In the past compulsory products were not linked so the Banks see old loans as less profitable overall. The Spanish Bank has no obligation to offer subrogation and will require a full application is made 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 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, and whether the Bank will in fact allow subrogation to take place.