What is the novation of a mortgage?

A novation is any change made to a mortgage loan after it has been taken out

A mortgage novation is any change that is made to a mortgage loan after it has been taken out, and it entails a new agreement of intent between the parties in order to renegotiate the contract.

The possibilities of change are numerous. A few examples follow:

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  • Increasing the amount of the loan to gain access to new funding.
  • Changing the term of the mortgage.
  • Changing the system for repayment, the benchmark rates, etc...
  • Releasing or adding new guarantees, whether property or personal.

All these possibilities, and more, can be implemented through a novation, either individually or combining several options.

The novation of a mortgage is a new operation that entails some costs. It may even be necessary to appraise the property again. Essentially, we are talking about renegotiating prices and risks. This usually entails a novation fee that the bank will charge.
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Depending on what the novation involves, the forms change. For example, if it is merely a change in interest rates, a private document is usually enough. However, in most cases, a public deed needs to be drawn up and formally registered. Depending on the features of the novation, it may be necessary to pay Stamp Duty, which varies in each autonomous community and ranges between 0.5% and 1.5%.
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