Navigating Mortgage Subrogation Fees: What You Need to Know

Just one year ago, in November 2022, the Government of Pedro Sánchez announced the approval of a series of new developments in the Code of Good Practices of banking entities, which included the elimination of commissions for mortgage subrogations, in the event that these were made to change the interest rate from variable to fixed or mixed. The increase in the Euribor and official interest rates by the European Central Bank (BCE) led at that time the Spanish Executive to take this measure with the objective, they said, of “alleviate the mortgage burden on more than one million vulnerable households or at risk of vulnerability due to the increase in the Euribor, preserving financial stability.”

This standard was mandatory for all entities and promoted the executions of creditor subrogations, That is, the mortgage bank changes to modify its interest rate, in our country. So much so that, “during the first months of 2023, more than half of the operations we carried out at iAhorro were mortgage subrogations,” says the Mortgage Director of the comparator and mortgage advisor. iSavings, Simone Colombelli.

Of course, the elimination of subrogation commissions had an execution period of one year: from January 1 to December 31, 2023. And, although there have been rumors that it could be extended beyond December 31, this year, “with the euribor in a stabilization phase and even somewhat downward and the stoppage of ECB rate hikes It is possible that the exemption from subrogation fees for mortgage holders will come to an end at the end of the year,” explains the iAhorro spokesperson. However, although the Euribor trend has moderated, it remains around 4% and interest rates at 4.5%, up to 1.2 and 2.5 percentage points higher than when this decision was made, in November 2022, respectively.

Subrogating the mortgage could cost more than 5,000 euros from 2024

What will happen from January 1, 2024? “Spanish people will once again pay a commission for changing their bank mortgage,” adds Simone Colombelli, who also remembers thate “these commissions are normally around 2% of the outstanding capital during the first ten years of the loan and, from there, they are reduced to 1.5%. Of course, each bank can offer different commissions, even 0% if the mortgagee knows how to negotiate their mortgage contract well.

For example, whoever hired a variable mortgage of 150,000 euros and a differential of 0,99% In October 2019, when the Euribor was negative (-0.304%), he has seen how his mortgage payment has increased from 461.13 euros per month then to 774.96 euros today after the annual review that it had to do last month with a Euribor at 4.160%. In this case, the increase in price has been 313.83 euros per month, for which you pay now 68% more than what I paid initially. In case you want to change this mortgage now for a fixed one so as not to suffer any further fee increases soon, the procedure would be practically free “you would only have to pay the appraisal of the home, which is between 300 and 400 euros, depending on of its dimensions and the appraiser who carries it out,” says the iAhorro Mortgage Director.

However, if this person, who has a few 132.000 euros to still pay the mortgage, wait until next year to make that subrogation, the cost would increase considerably in case of having a commission for carrying out the operation. If this commission is what the law establishes, 2% before the first ten years of the life of the loan, the mortgagee would have to add another 2,600 euros to the cost of the appraisal, so You would pay about 3,000 euros to change your bank mortgage and, with it, its interest rate from variable to fixed or mixed.

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If the outstanding capital increases, the amount of the subrogation commission will also be higher. For example, if instead of 130,000 euros, the mortgagee has left to pay 250.000 euros also before completing ten years of the loan, with a 2% commission I would have to add the 5,000 euros subrogation commission to the 300/400 euros of appraisal.

Is it better to subrogate at the beginning or at the end of the life of the mortgage?

“The less capital you have left to amortize on the mortgage, the cheaper the exchange will be because the commissions go down and are applied to the remaining capital. However, it will be less profitable for the mortgagee to do so at the end of the loan because, during the last years of the mortgage, it is when the least interest is paid on it because in Spain we are governed by the French amortization system,” says Colombelli, who He adds that, then, “Although it is a little more expensive to do it at the beginning of the loan, In the long run it will be more beneficial for the mortgage holder, since they will save much more in paying interest to the financial institution if they get a better mortgage.”