Novation
Novation is the renegotiation of the conditions of your bank loan, in case they should go against you. Learn all the ins and outs.
When signing our mortgage, we do so because we think we’ve chosen the best option, which offers us the most favourable conditions. However, these conditions may go against us and turn what seemed like the ideal mortgage into our worst nightmare.
Faced with this situation, we nevertheless have no reason to change banks if we’re happy with the services offered by our present bank: novation allows us to renegotiate our initial loan conditions without having to switch banks.
What can we change?
Novation can be used due to one or several agreed factors. This would allow you to change your original mortgage conditions as follows:
- Increase or reduce the amortization period, as well as increasing the amount borrowed.
- Change from a variable- to fixed-rate mortgage, as adverse conditions may derive from ongoing changes to interest types.
- Change the reference index (usually Euribor) or reduce the net tax amount on the loan, which is generally 1.5 per cent.
Costs
But, as with all transactions, this operation requires an outlay. Firstly, it’s not compulsory to worry about title deed costs to carry out a novation. However, banks recommend this to legally guarantee payment. That said, should you decide to change your mortgage from fixed- to variable-rate, the title deed will become compulsory.
In general, notary, registry and agency formalities, including VAT, amount to around 400 euros. Don’t forget however that many banks add a modification commission to their loans, which can vary between 0.5 and 1 per cent of the amount borrowed.