Mortgages and finance in Spain

– If I cannot pay my mortgage fees, Could I hand over the property to the bank and cancel my debt?

Yes. It is known as “dación in pago” (accord and satisfaction). However, the appraised value of the home at that point must be equal or superior to the existing debt. In any other case the debt would be reduced, but not cancelled. Thus, handing over the property does not automatically mean the total debt cancellation.

– Is it simply enough to inform the bank that I wish to hand the property over?

No. You will also have to sign a notarized deed in virtue of which the debtor hands over the property and the bank accepts it in payment of the debt or of part of it.

 – What is the subrogation of a mortgage?

Broadly speaking, it is the replacement of one debtor by another and it usually occurs in purchase transactions. In exchange for part of the purchase price, the buyer assumes the debtor position that the developer or private vendor have in relation to a mortgage on the property. The vendor saves on the cost of cancelling the mortgage, the buyer saves on the cost of incorporating a new one and the bank retains a customer. Subrogation can be agreed between purchaser and vendor, but it must be also approved by the credit institution.

 – Is there any obligation to contract an insurance policy when signing a mortgage deed?

By law, a mortgaged property shall be insured against the risk of total lost, covering the insurance policy the cost of reconstruction bt not the value of the land. However, some credit institutions condition the granting of the mortgage to the signing of a life insurance policy.

 – Which commissions are associated to the constitution of a mortgage?

* Opening fee. Single payment that is made when the loan is constituted in consideration of the administrative and management costs. It is usually a percentage of the amount borrowed.

* For partial or total repayment. It is payable when the borrower wants to pay all or part of the debt before the expiration deadline. It cannot exceed 0.50% of the capital outstanding.

* For subrogation. Charged when the purchaser of a mortgaged property prefers to keep the existing loan, which changes to be in their name, rather than applying for a new one. It is paid by the purchaser.

* For changing conditions or warranties (term, interest rate, interest only, etc.)

* For a change of creditor: the debtor, during the life of the loan, can decide to take it to another entity that offers better terms. The fee is paid to the original creditor as compensation.

All these commissions, as well as the other conditions of the mortgage, must be reflected in the binding offer that the lender provides to the customer for acceptance prior to the signing of the mortgage deed before the Notary Public.