The novation of a mortgage loan (novación) is a modification of the original terms of a mortgage contract, formalised by public deed (escritura pública) before a notary. Through a novation, the debtor and the creditor (usually a bank) agree to change certain clauses of the loan, without having to cancel it and take out a new one.
This act must be executed as a public deed and usually also involves registration at the Land Registry (Registro de la Propiedad) if it affects registered terms. It may involve notarial, registration and tax costs, although in many cases, particularly in the case of subrogation or improved terms, these are reduced.
What is it for?
- To renegotiate the interest rate (fixed, variable or mixed)
- To extend or shorten the repayment period
- To change the loan amount or the grace period
- To change the parties involved (borrowers, guarantors...)
- To alter the terms of the security or specific clauses
What does the notary do?
- Reviews the original mortgage loan deed
- Drafts the new deed with the modified terms
- Explains the new terms and their legal effects to the borrower
- Authorises the document with full legal validity
- In some cases, attaches the transparency certificate (acta de transparencia) if required by the Spanish Mortgage Credit Act (LCCI)
Main features
- It does not involve cancelling the previous loan
- It is formalised by public deed
- The bank may charge a novation fee
- It may involve improved financial terms (such as a lower interest rate)
Important considerations
- A new valuation or insurance may be required if the capital is changed
- Some modifications are tax-exempt, others are not
- It is advisable to compare it with a subrogation or a new mortgage
- The notary acts as guarantor of the legality of the act and of your understanding of it
Legal validity
The public deed of novation has full legal validity and is effective for registration purposes if recorded at the Land Registry. It evidences that both parties voluntarily and lawfully consent to the modification of the terms of the original mortgage loan.