Mortgage novation: what you can change and what it costs

Mortgage novation in Spain is the agreement to renegotiate the loan with your own bank, without cancelling it or opening another. Through a modification deed, art. 4.2 of Law 2/1994 lets you change capital, term, interest rate, repayment system or guarantees, and each change has its own costs.

What is novation and what can you change?

Novation lets you renegotiate with your own bank one or more elements of the mortgage in a modification deed. Law 2/1994 of 30 March, on the subrogation and modification of mortgage loans, governs this, and its Article 4.2 provides that, when the lender is a credit institution, the public deeds may relate to these circumstances:

Modifying the loan does not by itself alter the rank of the registered mortgage, unless the operation increases the mortgage liability or extends the term because of that increase; in that case the law requires the consent of holders of rights registered with a later rank (art. 4.3). Before signing, it is worth seeing the effect of each change on the payment and the total cost: you can compare your mortgage before and after with the calculator by entering the new terms against the ones you already have.

What fee may you be charged?

There is no single "novation fee": it depends on what you change. Two legal rules cap what the bank can charge you.

Article 10 of Law 2/1994 sets that, in modifying novations whose purpose is to extend the loan term, the institution may not charge, as a fee for modifying conditions, more than 0.1% of the outstanding capital. On its wording, that cap is designed for extending the term; other modifications are governed by what your contract states and by the specific early-repayment rule where one applies.

Article 23.6 of Law 5/2019 (LCCI) governs the most common case when renegotiating the rate: moving, for the rest of the loan's life, from a variable rate to a fixed one or to a mixed one with a first fixed period of at least 3 years. In that conversion, the compensation or fee for early repayment may not exceed the bank's financial loss, with a limit of 0.05% of the capital repaid early during the first 3 years of the loan agreement. After those first three years, the bank may not require any fee under this heading (0%). And if the novation does not involve any early repayment of capital, no fee may be charged under this heading either. Those three years count from the life of the original agreement, not from the moment of the novation.

When is novation exempt from AJD?

Novation is exempt from AJD when the deed is limited to the interest rate, the term, or both. Article 9 of Law 2/1994 exempts from the graduated form of AJD (stamp duty on documented legal acts) the deeds of modifying novation of mortgage loans agreed by common accord between lender (a credit institution) and borrower, provided the modification relates to the conditions of the interest rate, to the change of the term, or to both.

The art. 9 exemption does not expressly cover other modifications, such as an increase of the capital, a change of guarantees or the repayment system. Exactly how those modifications are taxed — including their tax base — depends on the tax legislation and on how the tax authority interprets it, so you should check this with the tax authority of your autonomous region, which is competent for AJD, before signing.

Which notary and registry costs are reduced?

Notary and registry fees are calculated with reduced tariffs for deeds of subrogation, modifying novation and cancellation of mortgage loans. Article 8 of Law 2/1994 applies them as follows:

• Notary fees: calculated using the tariff for "documents without a stated amount" (number 1 of Royal Decree 1426/1989), instead of the general tariff by amount.
• Registry fees: those of number 2, "Registrations" (Royal Decree 1427/1989), taking the outstanding capital as the base and with a 90% reduction.

These specific amounts depend on the tariff and on your operation; ask the notary and the registry for them in writing before signing. As with any mortgage, it is worth looking at the total cost of the operation — not just the resulting payment — to know whether the novation is worthwhile.

Does the LCCI apply to my novation if I signed before 2019?

If an earlier loan is novated after 16 June 2019, the LCCI applies to that operation. The borrower also keeps the Article 23.6 right regardless of the date of the agreement.

Law 5/2019 (LCCI), in force since 16 June 2019, does not generally apply to loan agreements signed before that date. Its first transitional provision adds two important points for anyone renegotiating an older mortgage:

• If an earlier agreement is subject to novation or subrogation after 16 June 2019, the LCCI's provisions do apply to that operation. In particular, the bank must inform you, in the terms of Article 14, of the contents modified relative to what was originally agreed.
• Whatever the date the agreement was signed, the borrower always has the right of early repayment under Article 23.6 (the variable-to-fixed or mixed conversion described above).

Article 14 governs the pre-signing documentation (among other items, the FEIN, the Spanish binding offer document, at least ten calendar days in advance) and Article 15, the prior notarial act that verifies its delivery. The exact scope of what documentation each specific novation requires falls to notarial and registry practice; ask your bank in writing which documents it will give you.

What are the differences between novation, subrogation and a new mortgage?

Novation, subrogation and a new mortgage are three different routes for changing conditions or financing. These are the three routes, with their features under the law, none of them better in the abstract: it depends on your specific case and on the total cost of each option.

Law 2/1994 lists exhaustively the operations with benefits (subrogation, modifying novation and cancellation). Cancelling the existing mortgage and setting up a completely new one does not fit those cases, so it does not benefit from the art. 9 AJD exemption or from the art. 10 fee cap of this law. That is a direct consequence of the legal text, not an additional rule.

What practical steps help negotiate your novation?

To negotiate a novation, ask for the proposal in writing, compare the total cost, and check fees, taxes, tariffs and discounts. Review it in this order:

• Ask for the proposal in writing. Request from the bank the detail of the new terms and, where applicable, the art. 14 documentation (FEIN included) on the contents being modified.
• Compare the total cost, not just the payment. A lower payment from extending the term can mean more interest. Enter the current and proposed terms in the calculator and compare the APRC (TAE; commonly APR) and total cost before and after the novation.
• Review the effect on the discounts. Discounts for insurance, salary deposit or cards tied to the mortgage can change with the novation; check which products it requires and at what price.
• Check which fee applies. See whether your case falls under the 0.1% cap for extending the term (art. 10) or the 0.05%/0% regime for converting to a fixed rate (art. 23.6 LCCI).
• Confirm taxes and tariffs. Remember the AJD exemption covers only rate and/or term; for other changes, check your regional tax authority.

To understand why the APR is the figure that matters when comparing, see the guide on the difference between the nominal rate and the APR; and if you are weighing converting to a fixed rate, review the keys of fixed or variable mortgage.

Frequently asked questions

What can be changed through mortgage novation?

Through mortgage novation you can renegotiate with your own bank one or more elements of the loan. Art. 4.2 of Law 2/1994 mentions capital, term, interest-rate conditions, repayment method or system, other financial conditions and the provision or modification of personal guarantees.

What fee applies when extending the term?

If the novation is for extending the loan term, art. 10 of Law 2/1994 limits the fee for modifying conditions to 0.1% of the outstanding capital. That cap refers to term extension; other modifications depend on the contract and on the specific rule that applies.

Does novation pay AJD stamp duty?

A modifying novation is exempt from AJD under art. 9 of Law 2/1994 when the deed is limited to the interest rate, the term, or both. The exemption does not expressly include capital, guarantees or repayment system, so those changes should be checked with the regional tax authority.

What if I signed the mortgage before June 2019?

Law 5/2019 does not generally apply to loans before 16 June 2019, but if that agreement is novated or substituted afterwards, the LCCI applies to the operation. The art. 23.6 right to convert from variable to fixed or mixed also operates regardless of the date of the loan.

Summary

• Novation renegotiates the mortgage with your own bank; art. 4.2 of Law 2/1994 lets you change capital, term, rate, repayment system and guarantees.
• The fee for extending the term is capped at 0.1% of the outstanding capital (art. 10); moving from variable to fixed or mixed is governed by art. 23.6 LCCI (0.05% in the loan's first 3 years, then 0%, limited by financial loss).
• The AJD exemption (art. 9) covers only novations of rate and/or term; for capital, guarantees or repayment system, check your regional tax authority.
• Reduced notary and registry tariffs apply (art. 8: documents without a stated amount and a 90% registry reduction).
• If you signed before June 2019 and novate afterwards, the LCCI applies to what is modified and you always have the art. 23.6 right (first transitional provision).

Compare your mortgage before and after a novation

Official sources

• Law 2/1994 (subrogation and modification of mortgage loans) — arts. 4 (what can be modified), 8 (reduced tariffs), 9 (AJD exemption) and 10 (fee for extending the term) (BOE, consolidated text).
• Law 5/2019 (LCCI) — arts. 14 (transparency), 23.6 (early repayment on conversion to a fixed or mixed rate) and the first transitional provision (BOE, consolidated text).
• Royal Decree-law 8/2023 — amends art. 23.6 of the LCCI and extended until 31 December 2024 the now-expired temporary suspension of fees (BOE).

Notice: this guide and the calculator are for information and educational purposes. They are not financial, tax or legal advice, nor a loan offer. The tax treatment (AJD) depends on the legislation and on the autonomous region; always check the terms with your bank, the regional tax authority and, if you need it, a professional. The lender's FEIN sets out the binding offer and the figures calculated under its conditions and assumptions.