The Subrogation of the Mortgage Credit Loan
June 15, 2019
The subrogation of the loan has been a real possibility for some years now. It is often spoken of and is generally associated, not without reason, with the concrete possibility of seeing the mortgage payment reduced .
So let’s see in detail what it is, how it works and what are the best conditions to replace your mortgage
Reduce your mortgage payment
When thinking about the possibility of reducing your mortgage payment , there are several possible solutions:
– if we have a variable rate mortgage, we can for example hope that the value of the Euribor , to which most of this type of financing is indexed, will drop significantly
– a possible alternative is the early repayment of the loan . In many cases, if we have available capital and decide to pay off a portion of our debt before maturity, we will see our installment reduced in a measure dependent on the value of the debt repaid.
If none of these possibilities can be taken into consideration, due to market conditions or, as in most cases, due to the lack of capital to be used for the early repayment of the loan, there remain only two other solutions: the subrogation or renegotiation of the loan.
The subrogation and renegotiation of the loan: main differences
The subrogation of the loan is the possibility of transferring your mortgage to another bank at no cost. The subrogation was regulated with the law n.40 of 2007, also known as “Bersani decree”.
In practice, anyone with a mortgage at any bank can request a transfer to another one without having to pay off the old mortgage and activate another one, with obvious cost savings. The type of interest rate (for example, from fixed to variable or vice versa) or the duration of the loan itself can vary, but not the residual amount of the loan. Here therefore that the installment can be reduced:
- for the best rate conditions applied by the new bank
- for the type of interest rate applied, for example in the transition from a fixed to a variable or mixed rate
- for changing the duration of the loan
But the legislation introduced in 2007 on the subrogation also had the effect of increasing the chances of having more convenient conditions simply by renegotiating the loan with one’s bank.
The renegotiation can therefore be carried out with a private agreement between the bank and the borrower, at no additional cost. But why should a banking institution grant us more favorable conditions unilaterally?
The motivation is given by the possibility, foreseen by the law, of being able to resort to subrogation . The banks know perfectly well that, if the customer decides to transfer his mortgage to another bank, they are unable to prevent it. Hence, if the market is able to guarantee more favorable conditions for borrowers (for example because the spreads applied by the banks have fallen, or for a drop in rates that makes fixed-rate mortgages more convenient than before) the banks will be available, perhaps at the request of the customer, to allow the renegotiation of the loan, in order not to lose the customer who could still find the conditions more favorable to him elsewhere.
It is therefore a good idea when you are trying to subrogate your mortgage , even to hear any renegotiation offers from your bank, the one with which we activated the existing mortgage: the good proposals could also come from them.
Is the subrogation really at no cost?
Although for the subrogation there should be no additional costs, the advice is always to check it, with explicit questions to banks.
A bit of attention, for example, must be placed on property insurance, which in practice all banks provide for the opening of the mortgage. For example, we may have paid the insurance in advance at the time the mortgage was opened, and in this case we should request reimbursement for the unused portion, unless it is also possible to transfer this, under the same conditions, to the new mortgage . Or we could have the monthly amount of the insurance included in the installment, and in that case we must verify that we do not have different insurance costs on the new mortgage.
Why the subrogation of the mortgage?
We have seen that the subrogation or renegotiation of the loan generally has the purpose of obtaining more advantageous conditions for one’s mortgage. Although the goal is often the reduction of the installment , to have a better standard of living, sometimes the reasons may be different.
The most attentive, in fact, could make assessments of a more financial nature: for example, if the market conditions are particularly favorable, one could think of switching from a variable rate mortgage to a fixed rate one. In spite of a probable increase in the immediate installment, in fact, one could benefit from very favorable conditions in the hypothesis of a subsequent increase in rates.
Another possibility could be that of a reduction in the duration to limit the amount of interest to be paid, if there is greater economic availability.
In short, subrogation is a very important tool in the hands of the borrower, if and how to use it requires an in-depth analysis of their needs and market conditions.