Yes, it is possible to change a mortgage from fixed to variable rate in Spain, but it requires following certain steps and carefully assessing whether this decision is the most appropriate for your financial situation. Changing the interest rate can be done by novation of the contract or subrogation to another bank. Below, we explain how this process works and when it might be a good idea.
1. What does it mean to change from a fixed to a variable mortgage?
Switching from a fixed to a variable mortgage means changing the interest rate applicable to the loan. Instead of paying a constant interest rate for the entire term of the loan, you will switch to an interest rate that fluctuates according to a reference index (generally the Euribor) plus a differential.
2. Methods to change your mortgage
a) Novation
The novation consists of renegotiating the conditions of the mortgage with your current bank. It is a convenient option if you have a good relationship with the financial institution.
- Advantages: Lower costs than subrogation and less paperwork.
- Disadvantages: The bank may not offer you the best conditions compared to other entities.
b) Subrogation
Subrogation involves transferring your mortgage to another bank that offers better conditions. The new bank will assume the debt and establish a new contract.
- Advantages: Possibility of accessing better interest conditions.
- Disadvantages: Additional costs, such as home appraisal and registration fees.
c) Cancellation and new mortgage
In this case, the current mortgage is cancelled and a new mortgage loan with the desired conditions is signed. It is less common due to its higher costs.
3. Steps to change from fixed to variable rate
Step 1: Evaluate your current mortgage
Check with your bank the outstanding principal, the current conditions, and if there are any costs for modifying the contract, such as a novation or early cancellation fee.
Step 2: Compare market offers
Research the available variable interest rates and the spreads applied by other institutions. Make sure the Euribor and spread are competitive.
Step 3: Calculate changeover costs
Possible costs include:
- Bank fees: For novation, subrogation or cancellation.
- Notary and registry fees: If a new contract is formalized.
- Home appraisal: May be required for subrogations.
Step 4: Negotiate with your bank
Before switching to another entity, try to renegotiate the conditions with your current bank. Often, they prefer to adjust the conditions to retain their customers.
Step 5: Formalize the change
Once the new conditions have been agreed upon, the change is formalized before a notary and registered in the Land Registry.
When is it a good idea to switch from fixed to variable?
a) Variable rates are at historic lows
If the Euribor is at low levels and is expected to remain stable in the short to medium term, switching to a variable rate could reduce your monthly payments.
b) Long amortization period
In mortgages with long terms, a variable interest rate can be beneficial in the early years if rates are low.
c) You are looking to reduce your monthly payment
Variable mortgages tend to have lower initial payments than fixed mortgages.
When is it NOT a good idea to switch from fixed to variable?
a) Expectation of Euribor increase
If the Euribor is expected to rise, your payments could increase significantly over time.
b) Stability assessment
If you prioritize the security of having constant and predictable payments, it is better to keep a fixed mortgage.
c) High exchange costs
If the costs of novation or subrogation are high, the change may not be profitable.
6. Advantages of switching from fixed to variable
- Reduced down payments: You take advantage of the current low interest rates.
- Greater flexibility: Variable rates can better suit your needs if rates are low.
- Possibility to save: If the Euribor remains low, you can pay less interest in the long term.
7. Risks of switching from fixed to variable
- Uncertainty: Installments may increase if the Euribor rises.
- Market dependence: Your mortgage will be subject to economic fluctuations.
- Limited short-term savings: Rate changes may not offset initial costs.
8. Advice before making the decision
- Consult a Mortgage Broker: An expert can help you evaluate the risks and benefits.
- Analyze future scenarios: Use a mortgage calculator to simulate possible Euribor increases.
- Review all terms and conditions: Make sure there are no hidden clauses or excessive bindings in the new contract.
Switching from a fixed to a variable rate mortgage is an important decision that requires a thorough analysis. If you decide to do so, be sure to negotiate the best possible terms.
