What is mortgage novation?
A mortgage novation is any change in the terms and conditions of a mortgage loan at some point after it has been signed. In short, it is the renegotiation of the loan with the bank with which it has been arranged.
What aspects can be involved in the novation of a mortgage?
A mortgage novation can involve various aspects of the loan:
- An increase or reduction in the borrowed capital
- A change in the repayment period
- A change in interest rate conditions
- A change in the repayment method or system
- The release or inclusion of new personal or collateral guarantees
- A change in the currency in which the mortgage is arranged
Once an agreement is reached between the borrower and the lender, the amendment of the mortgage contract must be implemented, which must be formally recorded in a public deed and registered in the Land Registry. The mortgage novation, therefore, involves a combination of notary and registry fees, in addition to any fees that may be levied by the bank for carrying out the novation.
In the case of a mortgage novation due to a change in titleholder, we'd be referring to a subrogation of borrower.