What should you know about mortgage subrogation?
Mortgage subrogation is a process in which the holder of the mortgage loan is replaced, maintaining the original conditions of the contract. This process is common when a home is purchased that is already mortgaged, and the buyer assumes the existing loan, avoiding the costs of formalizing a new mortgage. This operation can be beneficial in certain cases, but it also entails costs that must be carefully evaluated before making a decision.
What is a mortgage subrogation?
Subrogation is a modification of the mortgage contract, in which one of the subjects of the loan is changed, either the debtor (who has the mortgage) or the creditor (the financial institution). There are two main types of subrogation:1. Subrogation of Debtor : This is where the person who pays the mortgage changes. This usually happens when a home is purchased with an existing mortgage, with the buyer assuming the conditions of the loan.
2. Creditor Subrogation : The financial institution responsible for the loan is changed. This occurs when it is decided to transfer the mortgage to another bank that offers better conditions.
Both situations have their particularities, but the objective is the same: to modify some of the parts of the contract without having to renegotiate the entire loan from scratch.
When is it advisable to subrogate a mortgage?
Subrogating a mortgage can be a good option if the conditions of the existing loan are favorable, such as low interest or manageable monthly payments. It is also advisable if the costs of formalizing a new mortgage (such as notary fees, commissions, taxes and registration) are higher than the costs of subrogation.However, there are situations where it is not convenient:
• You have cash : If you have enough money to buy the home in cash, it may be more profitable to pay off the current mortgage.
• The mortgage has unfavorable conditions : If the installments or the interest rate are not competitive, it may be better to take out a new mortgage than to renegotiate the existing one.
Expenses associated with mortgage subrogation
Although subrogating a mortgage may be less expensive than taking out a new one, it is not without expenses that you should take into account:
• Appraisal : If the last appraisal of the home is more than six months old, you will have to do a new one and assume the cost.
• Notary : Notary fees will be lower than those of formalizing a new mortgage.
• Property Registry : As with the notary, the costs here will be lower than when registering a new mortgage.
• Agency : There will be no significant savings at this point, since the cost of the agency remains the same.
As for taxes, although you will not have to pay the Tax on Legal Documents (IAJD) related to the mortgage, you will have to assume this tax on the purchase-sale. Other taxes, such as VAT and the Property Transfer Tax, will not see any reductions either.
• Appraisal : If the last appraisal of the home is more than six months old, you will have to do a new one and assume the cost.
• Notary : Notary fees will be lower than those of formalizing a new mortgage.
• Property Registry : As with the notary, the costs here will be lower than when registering a new mortgage.
• Agency : There will be no significant savings at this point, since the cost of the agency remains the same.
As for taxes, although you will not have to pay the Tax on Legal Documents (IAJD) related to the mortgage, you will have to assume this tax on the purchase-sale. Other taxes, such as VAT and the Property Transfer Tax, will not see any reductions either.
Steps to subrogate a mortgage
If you decide to proceed with a mortgage subrogation, these are the steps you must follow:
1. Look for offers at banks : Investigate the offers available at different financial institutions.
2. Creditworthiness study : The new entity will review your financial profile to see if you can take on the mortgage. If it is viable, they will give you a binding offer.
3. Response from your current bank : Your current bank has 15 days to match or improve the offer. If they do, you will keep your mortgage with them. If they don't, you will be able to transfer your mortgage to the new bank.
4. Formalization : If you move to another bank, the new entity will pay the outstanding balance of your current mortgage, including interest and fees, and the change will be formalized before a notary.
1. Look for offers at banks : Investigate the offers available at different financial institutions.
2. Creditworthiness study : The new entity will review your financial profile to see if you can take on the mortgage. If it is viable, they will give you a binding offer.
3. Response from your current bank : Your current bank has 15 days to match or improve the offer. If they do, you will keep your mortgage with them. If they don't, you will be able to transfer your mortgage to the new bank.
4. Formalization : If you move to another bank, the new entity will pay the outstanding balance of your current mortgage, including interest and fees, and the change will be formalized before a notary.
Necessary documentation
To complete the surrogacy, you will need to submit several documents, including:
• Photocopy of ID.
• Payrolls and employment contract (if you are an employee).
• Income tax return and latest receipts for current mortgage.
• Mortgage deed.
• For self-employed workers: registration as self-employed and VAT and personal income tax returns.
Subrogating a mortgage between individuals can be an effective way to save on mortgage expenses, but it is essential to evaluate the conditions and associated costs before making a decision.
• Photocopy of ID.
• Payrolls and employment contract (if you are an employee).
• Income tax return and latest receipts for current mortgage.
• Mortgage deed.
• For self-employed workers: registration as self-employed and VAT and personal income tax returns.
Subrogating a mortgage between individuals can be an effective way to save on mortgage expenses, but it is essential to evaluate the conditions and associated costs before making a decision.