The coronavirus crisis is putting families' incomes in check. Many are taking advantage of confinement to make numbers and see how they can reduce their daily expenses to start saving and prepare for an uncertain future.
The economic forecasts for the coming months are at least Dantesque: a historical collapse of GDP, a sharp rise in unemployment, which could return to the levels recorded in the worst moments of the previous crisis, a significant loss of household purchasing power, and a public debt that will break record.
In this scenario, and taking into account that the mortgage payment is the main recurring expense of thousands of families due to the amount and the time during which it lasts, the demand for mortgage subrogations has skyrocketed, allowing the conditions of a loan in order to improve those that are in force and that entails a change of bank (in the case of continuing with it, the process is called mortgage novation).
Therefore, it can be a good alternative to cut expenses for those who remain outside the mortgage moratorium approved by the Government by not meeting the requirements established by the regulations.
Subrogations have been gaining momentum in recent months. According to the official data of the INE (whose latest statistics refer to February and, therefore, do not include the 'covid-19 effect'), the monthly figure has stabilized at around 1,300 operations, the best records since the first quarter. of 2019, although market data indicates that in the first four months of the year, requests for mortgage improvement by customers have shot up close to 80% in year-on-year terms.
The first thing experts recommend is making numbers to make sure it pays to make a change to the loan. Juan Villén, responsible for idealist / mortgages, explains that “each personal situation is different, there will be cases in which subrogation makes sense and others in which it does not, but it is certainly worth taking advantage of the greater free time we have due to confinement. to carry out at least the calculation exercise for the potential savings that can be achieved ”. And he adds that "it is a punctual management that can lead to savings of several thousand euros in the medium term", so "just as when signing a mortgage the first time, it is essential to compare different offers and make numbers".
In addition, Villén recalls that there are two other factors that favor the improvement of mortgages: the first is that interest rates remain extremely low and could remain at minimum levels for several years, "which favors those who want to review their mortgage, mainly if they formalized it between 2009 and 2017, when the banks applied more expensive conditions to loans for the purchase of housing ”. In general, mortgages signed during the real estate boom or after 2017 will have very similar or even better conditions than today. Before the bursting of the bubble, for example, mortgages with spreads of less than 0.5% were granted (currently the most competitive offer a spread of 0.75-0.85%, but with conditions).
The second incentive is found in the mortgage law that came into force in June last year, among whose great novelties is that it allows you to change a variable mortgage to a fixed one with little cost, "which, and although in the current situation it surely does not imply a lowering of the monthly fee, it can give peace of mind to many families in a time of uncertainty. Until then, subrogation was only allowed when there was a reduction in the interest rate, which in fact made subrogation impossible if you wanted to change from variable to fixed mortgages, now you can change both ways, whether you have immediate savings or not, "clarifies the responsible for idealistic / mortgages.
Recall that fixed-rate mortgages have been gaining ground in the market and that they represent on average between 35 and 40% of operations, despite the fact that the Euribor is in negative territory.
With these advantages on the table, and in the interest of many families to reduce their expenses, we summarize some practical tips on how to improve your mortgage:
1. Decide what you want to do
The first of all is to be clear about our objective: if it is simply to reduce the interest rate, without changing anything else, or if we want to change the mortgage from variable to fixed (to gain peace of mind) or from fixed to variable (to reduce monthly installment) . Another possibility would be to extend the term of the mortgage to pay a lower installment, although this alternative involves paying more long-term interest.
2. Check what is the interest rate you pay
This information is essential and you should easily see it on the bank statement of each monthly receipt, and of course in your mortgage deed. If the mortgage is fixed (or mixed and you are still in the fixed interest rate period), the interest that appears is the one you have to use as a reference; However, if the mortgage is a variable rate, what you should look for is the so-called "differential", which is the margin of the banks and to which you must add the Euribor (usually 6 or 12 months) to know the type of definitive interest.
3. Review your conditions and analyze the market
Once you have located that data, review what conditions are currently being applied by banks to be able to compare them with those you have on your mortgage. A quick way to check it is through an online mortgage comparator or, check the home loan loan offers that appear on the banks' web pages. Remember that some banks may apply better conditions than they advertise.
4. Talk to your bank if the numbers match
If after this initial investigation you see that it makes sense to go ahead, the first thing you should do is talk to your bank. Most are receptive to reviewing conditions at the risk of losing a client, and it is undoubtedly the fastest and lowest cost management. That said, the idealist / mortgages manager insists, "make sure it offers you current market conditions, and not a drop midway." In the event that your entity applies the improvements, we are in the novation process.
5. Plan B: consult the operation with other banks
If the management with your bank does not have the desired effect, it is time to knock on other doors and look for the solution in the so-called subrogations. In this sense, Villén stresses that "not all banks offer the possibility of subrogating mortgages (and some instead of opting for subrogation offer the cancellation of the previous mortgage and the formalization of a new loan), and here the process requires a little more dedication, but the savings can be very high ”.
Remember that you must provide documentation (payroll, latest income statements ...), you will have to appraise the house again (which will cost you, although some banks assume it), and take into account the costs that will suppose the change, both from the old bank side and from the new one; for example, if you are charged a subrogation fee, a loan opening fee or an interest rate risk fee.