Changing a mortgage

The borrower may decide to vary the terms of the mortgage loan in order to improve the economic conditions of the contract. The change may be done in the following ways:

a) “Replacement” loan. In order to take advantage of more favourable financial conditions and possibly also obtain liquid funds to meet new financial requirements, it is possible to pay off the old mortgage to take out a new one at the same or another bank. This leads to the discharge of the old mortgage and the taking out of a new mortgage with all the relevant costs and controls on legality;

b) “renegotiation“: this is an agreement between the bank and the customer to amend certain terms of the loan agreement, normally the duration and/or the interest rate. This change, which requires the cooperation of the original parties to the contract, however, has an important limitation in that the amount of the outstanding balance of the old mortgage on the date of signing of the amendment must be maintained;

c) “subrogation of the mortgage” (or “portability” of the mortgage): the borrower gets from a bank other than the one with which he had originally contracted the loan, a new loan on better economic conditions in order to pay off the existing debt and “replace” the old bank by the new one for all the guarantees contained in the previous agreement, including the mortgage already in place. The limitation on portability is the need for the new loan amount to coincide perfectly with the outstanding balance of the old mortgage. By law, the costs involved in the operation of subrogation are met by the new lending bank.