More and more variable rate mortgages value changing to the fixed rate in the face of the dizzying rise in the Euribor, which already makes the installments more expensive by more than 2,000 euros a year on average. Today, the mortgage index par excellence has increased again to 2.223% in daily rate, placing the provisional average for September at 1.994%.
The First Vice President of the Government and Minister of Economic Affairs and Digital Transformation, Nadia Calviño, recalled at an event that there are facilities to move the loan from 2019. There are several possible formulas, although clients are now facing a scenario of changes in the mortgage market. Most entities are raising fixed interest rates and it is increasingly difficult to find prices that are profitable. In general, fixed mortgages already exceed 2.5% APR, when a few months ago they could be obtained at 1% APR or even less. And it is that banks are now interested in directing contracts towards variable mortgages, with which they obtain more margin due to the escalation of the Euribor. Thus, experts advise doing the math and not resting on your laurels.
“Fixed mortgages are no longer the star mortgage of banks, whose commercial interests have turned to variable ones,” they point out from Roams, a digital adviser in personal finance. “It is possible that we are facing the last opportunities, before a runaway Euribor, to get fixed mortgages at a reasonable price that some entities still offer”, they assert.
Subrogation and novation
There are two ways to change from variable to fixed rate: by subrogation or mortgage novation. The first occurs when the financial institution loan is changed. The second is based on the modification of any clause of the mortgage through an agreement with the entity itself. In both cases, a variable installment is no longer paid, which fluctuates depending on the Euribor rate, and a fixed monthly payment begins that offers stability throughout the life of the loan.
The subrogation usually entails a change in some of the conditions, such as the interest rate to which the mortgage loan was initially subject. In mortgage novation, the interest rate, capital, repayment period or bonus requirements may be affected.
There is a third way that consists of contracting a new mortgage by canceling the previous one. In this case, you must carry out and pay all the procedures for canceling and formalizing a loan.
Associated expenses
The process to change a variable mortgage to a fixed one is associated with a series of expenses for consumers, among which are the commissions for carrying out the banking operation and the costs for reassessing the home.
In the case of subrogation, there is the possibility that an opening commission will also be added (provided that it was included in the mortgage signed with the new bank). There are also notary, registration and administrative expenses, which are paid by the financial institution where the new loan is signed.
For both subrogation and novation, the new Mortgage Law establishes the payment of a bank commission, which will depend on each entity.
The commission for mortgage novation usually oscillate between 0% and 1% of the percentage of the mortgage loan pending payment.
In the surrogacy there is a possibility that some banks will not apply it. In the event that they apply it, as long as its existence and cost are stated in the loan deed, it varies depending on factors such as the interest rate (fixed or variable) and the mortgage repayment period. In variable mortgages signed after June 16, 2019 (date on which the new Mortgage Law came into force), the commission can be 0.25% during the first 3 years or 0.15% until the fifth year. Once these 3 or 5 years have passed, respectively, you do not have to pay anything else.
The expenses derived from the appraisal -which can be between 200 and 400 euros- vary depending on the home and the type of operation carried out also comes into play. In a subrogation, you do have to pay the appraisal of the home, while in the novation only if necessary. This will depend on whether the owner has a recent appraisal of their home or if the bank directly decides that the home has not increased in value. In these cases, the house should not be appraised again.
What is better?
Thus, whether it is cheaper to novate a mortgage or subrogate it will depend on each case. For example, with an outstanding amount of 100,000 euros in the mortgage and appraisal expenses of 300 euros, the cost of subrogating a mortgage can be around 550 euros; while in the novation – having to pay the appraisal expenses – the expense is approximately 800 euros.
Olivia Feldman, co-founder of the financial portal HelpMyCash.com, maintains that “right now, the best thing to do is hire a landline, especially since you can still sign them with interest below 3% if you have a good profile.” He explains that, in a scenario in which a person is considering contracting a variable mortgage because a fixed mortgage at 2.50% APR seems expensive, “he has to understand that if the Euribor maintains the average for September, on the edge of 2% , with a differential of 0.80%, the variable mortgage, which would remain at 2.80% (sum of the Euribor plus the differential), would already be more expensive than the fixed one”.
In his opinion, contracting a variable now implies assuming a lot of risk due to the uncertainty that prevails in the market. “But since we don’t know if Europe is finally going to enter a recession, which could cause the Euribor to change its trend and drop next year, it’s also not advisable to sign a fixed rate with an exorbitant interest rate.”
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