Yes, it is possible to change banks while you have an active mortgage. This process is known as creditor subrogation and consists of transferring your mortgage to another financial entity that offers better conditions. Switching banks can help you reduce interest rates, adjust the repayment term or enjoy more favorable terms.
1. What is creditor subrogation?
Creditor subrogation is the process by which you transfer your mortgage from one bank to another. The new bank assumes the outstanding debt and you continue to pay the installments under the new agreed conditions.
This option is useful if you find a bank that offers you:
- A lower interest rate.
- Better conditions (such as less commissions or linked products).
- Greater flexibility in the term or monthly payment.
2. When is it convenient to change banks with an active mortgage?
Switching banks may be a good idea if:
- You find an offer with lower interest rates: A small reduction in the interest rate can mean considerable savings in the long run.
- You want to adjust the repayment term: Extending or reducing the term can help you better manage your finances.
- You want to get rid of linked products: Some mortgages include insurance or additional services that do not interest you.
- You are not satisfied with the service of your current bank: Quality of service and attention are also important factors.
3. Steps to switch banks with an active mortgage
a) Evaluate your current mortgage
Check with your bank about the terms of your loan, including:
- The outstanding balance of the mortgage.
- The subrogation fee (if applicable).
- The interest rate and the current monthly payment.
b) Compare offers from other banks
Research and compare the conditions offered by other financial institutions. Take a look at:
- Interest rate (fixed, variable or mixed).
- Amortization period.
- Associated commissions.
- Linked products (insurance, cards, etc.).
c) Request a binding offer
If you find an attractive offer, the new bank will provide you with a binding offer detailing the conditions of the subrogation.
d) Communicate the subrogation to your current bank.
The bank where you have the mortgage has 15 days to match or improve the offer. If it decides to match it, you can choose to stay with your current bank with the new conditions.
e) Formalize the change of bank
If you decide to change banks, the new lender will pay the outstanding balance to the original bank and you will formalize the change before a notary.
4. Costs associated with the change of bank
While switching banks can save you money in the long run, it is important to consider the upfront costs:
- Subrogation fee: In Spain, it usually ranges from 0% to 1% of the outstanding principal.
- Notary and registry fees: To formalize the subrogation.
- Cost of appraisal: The new bank may request an updated appraisal of the home.
- Linked products: Even if you reduce interest costs, the new bank may require insurance or other services.
Before deciding, calculate whether the savings generated are worth the associated costs.
5. Advantages of switching banks with an active mortgage
- Interest savings: A lower interest rate can significantly reduce the total cost of the mortgage.
- More flexible terms: Adjust the term or monthly payment according to your current needs.
- Possibility to negotiate: Take advantage of competition among banks to get better terms.
6. Inconveniences of changing banks
- Initial costs: Subrogation has associated costs that could be significant.
- Bureaucratic process: Changing banks requires time and legal procedures.
- Less favorable terms: Some offers may include costly linked products or restrictive covenants.
7. Alternatives to changing banks
If switching banks is not feasible or attractive, consider these options:
- Renegotiate the terms with your current bank (novation): Modifying the terms of your mortgage without changing banks can be cheaper and easier.
- Early amortization: Reducing the outstanding principal can reduce the interest and term of the mortgage.
8. Tips for a successful change of bank
- Calculate the total costs: Use a mortgage calculator to estimate the savings and compare them with the subrogation costs.
- Consult an expert: A mortgage advisor can help you find the best option.
- Avoid rushing: Research and compare offers before deciding.
Switching banks with an active mortgage is a viable option to optimize your financial conditions, but it requires careful planning.
