Mortgage subrogation: advantages and advice

Mortgage subrogation is an operation that allows you to change banks or credit institutions to finance the purchase of an already mortgaged house without paying early repayment costs on a previous mortgage.

Basically, the loan can be transferred with little or no loss of the original financial position unless market conditions change or the bank is declared bankrupt or insolvent.

What are the advantages of a mortgage subrogation?

The mortgage subrogation is an excellent solution to save on the costs of the mortgage on an already mortgaged house. In fact, interest on mortgages is one of the items of expenditure most sensitive to market fluctuations. Thanks to the right of subrogation it is possible to take advantage of the most favorable market opportunities to save on these costs while maintaining the originally established conditions.

Once you have found a more favorable mortgage than yours and decided to change banks, you will need to submit a subrogation request by registered mail to the newly chosen bank, together with personal, work and old mortgage documents. The newly chosen bank will perform all subrogation procedures and pay most of the fees.

This means that you do not need to fill out forms or formally communicate the subrogation to your previous lender as it is the new lender that carries out all the procedures. The law does not specify a minimum time limit for loan portability, but many banks require at least 12 to 24 months of installment payments to prior lenders to determine an applicant's creditworthiness.

Therefore, before submitting an application for subrogation, it is advisable to inquire carefully about the conditions envisaged by the bank in order not to reject the application due to lack of conditions.

The bank will not be able to block the transfer and must be accepted within 30 working days of sending the request. If the deadline is not respected, the bank will have to pay the customer a penalty of 1% plus the amount of the monthly payment for each delay caused.

Furthermore, the subrogation of the loan allows you to avoid paying the penalties for the early repayment of the loan, which otherwise can reach up to 3% of the value of the loan itself.

Finally, additional liquidity can be obtained, through subrogation a greater sum can be claimed for the purchase of the house to cover other expenses.

What are the conditions for requesting a loan subrogation?

To request the subrogation of the loan, it is necessary that the property being financed has been mortgaged and that the loan has been stipulated for at least one year before the previous credit institution disbursed the loan.

The subrogation is not convenient when you have a French amortization plan or when you have several years before the loan expires because the vast majority of the interest has already been paid.

In any case, the terms and conditions for entering into a new loan agreement must be agreed in advance between the two parties: the bank granting the loan and the customer requesting the right of subrogation.

The new bank will evaluate the requirements requested by the applicant, such as solvency, social security contributions and income.

It should also be noted that the mortgage subrogation applies only to mortgages of the type defined by the aforementioned legislation. In this sense, the home buyer must check whether the loan he offers falls into these categories.

How much does the loan subrogation cost?

The subrogation of the loan does not involve additional costs for the customer, except for the payment of a substitute tax of 2% on the amount of the new loan ( less than 250,000 euros ) in place of the fixed notary and registration fees.

However, the new bank may ask you to charge additional interest, which can be agreed to be paid monthly from the date stipulated in the new contract. For this reason it may be useful for a financial advisor to perform a benefit simulation before selecting the subrogation.

The mortgage subrogation is therefore a useful tool for those who need to save on mortgage costs or acquire additional liquidity without losing their declared financial position. However, before proceeding, it is advisable to carefully evaluate the conditions offered by the new bank and verify that the loan is suitable for your needs and repayment capacity.