Paying the mortgage is becoming a challenge for some homeowners, especially for those who have a variable mortgage. It should be noted that in the month of January, for example, the Euribor closed at 3.337%, so people whose mortgage was due for review have suffered the biggest increase in their mortgage payment in 12 months.
A person with a mortgage of 150,000 euros for 30 years with a mortgage of Euribor +0.99% had a monthly payment of about 449.64 euros per month and will now start paying about 733.28. On the other hand, with a mortgage of 300,000 euros with the same conditions, the monthly payment goes from 899.28 euros to 1,466.56.
It seems that this is not going to stop here. At the end of January the European Central Bank (ECB) applied a rate increase of 0.50 points and it is estimated that there will be another similar increase in March. Therefore, everything points to the Euribor continuing to rise.
What can be done about it? Having this type of mortgage installments can be a problem and, for this reason, there are several options to lower the installment.
Change the mortgage to get a better one
One of the banking operations that can help the user to pay less for his mortgage is the subrogation by change of creditor. It is a procedure through which the mortgage is transferred to another bank with better conditions.
In addition, if the user has a variable mortgage, he does not have to transfer the loan with that condition; when doing the operation, the loan can be changed to a fixed-rate loan and vice versa.
On the other hand, the good thing about subrogation is that you do not start paying the mortgage from the beginning, but from the point where you left off with the previous bank. This means that the user will save an origination fee (if any) and the interest for the first few years.
Another advantage of subrogation is its cost. Following the measures approved by the Government to alleviate the impact of the rise in the Euribor on mortgages, there is no subrogation fee to pay. Therefore, it will only be necessary to pay the appraisal, which is between 400 euros.
If you cannot subrogate, you can opt for cancellation.
Some banks do not allow subrogation due to a change of creditor and, therefore, if a person wants to move to another bank, he/she will have to cancel the loan. With this procedure, the loan is cancelled in the current bank and a new one is opened in another one.
When cancelling and having to open a new mortgage from scratch, the cost to be assumed increases: the cost of the appraisal, notary and cancellation (about 1,075 euros) together with the Tax on Documented Legal Acts or IAJD (between 0.5% and 1%, depending on the Autonomous Community in which the property is located).
Don’t want to change banks? Try novation
If a person does not want to change banks, novation may be the option that best suits his or her situation. It consists of changing the conditions of the loan in the bank itself. The user will have to negotiate with the entity so that it grants him the improvements that he needs.
In this case the expenses would be the commission for novation (some entities include it and it is applied with the modification of the amortization period and the change of type of mortgage), half of the notary expenses, the registry, the agency and the appraisal (it is only applied if the financing is modified and 6 months have passed since the last one was made).
The novation is more expensive than the subrogation and, for this reason, it is always advisable to take a look at the market to see if any other entity offers better conditions.
Do you have money saved? Amortizing can help you lower your monthly payment
If a person does not want to change banks and has a certain amount of money saved, he/she can carry out a partial amortization of the mortgage. It is a mechanism through which a part of the mortgage is paid all at once in order to achieve one of two objectives: to reduce installments or time.
In this case what the owner would choose is to reduce the installment. In this way, with the money invested, he may be able to reduce the monthly payment sufficiently so as not to have problems to pay it in the short term.
It must be taken into account that, depending on the entity, there may be a commission for this operation. The reform of the Real Estate Credit Law of 2019 establishes that with a fixed mortgage the surcharge can have a maximum of 2% during the first 10 years and 1.5% thereafter. In the case of the variable mortgage the first three years the commission is 0.25%, in the fourth and fifth year 0.15% and, thereafter, it cannot be applied.
In short, there are multiple methods to end up paying less with the mortgage. The key is to take them all into account in order to choose the one that best suits the user’s economic situation.