Mortgage Refinance Spain

Mortgage refinance Spain involves altering the terms of an existing property loan or replacing it entirely with a new one. Borrowers in Spain typically pursue refinancing to secure a lower interest rate, switch from a variable to a fixed rate, or release equity for other financial needs. The process is governed by strict regulations, specifically the Real Estate Credit Contracts Law (Ley 5/2019), which mandates transparency and consumer protection.

Refinancing a mortgage in Spain is distinct from refinancing in other jurisdictions due to the specific legal mechanisms available: novation (novación) and subrogation (subrogación). Understanding the difference between modifying a contract with your current bank and moving the debt to a new lender is the first step in the process. Spanish banks assess applications based on strict affordability criteria, utilizing data from the Banco de España and credit bureaus.

Types of Mortgage Refinancing in Spain

The Spanish financial system offers three primary methods to change mortgage conditions. Each method carries different costs, legal requirements, and tax implications.

Novation (Novación Modificativa)

Novation involves renegotiating the terms of the mortgage with the existing lender. The borrower does not change banks. Instead, they agree on new conditions which are then notarized. This is often the most cost-effective method as it avoids the cancellation of the old mortgage. Common changes during a novation include lowering the interest rate spread, extending the repayment term (plazo), or changing the interest rate type from variable (Euribor-linked) to fixed.

Banks are not legally obliged to accept a novation request. It is a negotiation. If the borrower’s risk profile has worsened—for example, if they appear on bad credit lists like ASNEF—the bank will likely refuse the modification.

Subrogation (Subrogación de Acreedor)

Subrogation allows a borrower to move their mortgage to a new bank. This process is essentially a transfer of the debt. The new bank pays off the original bank, and the borrower becomes a client of the new entity. This is common when a competing bank offers significantly better interest rates or fewer tied products (vinculaciones).

Under Spanish law, the original bank has the right to make a counter-offer (enervación). If the original bank matches or improves upon the new bank’s offer, the borrower may be compelled to stay, although recent legislative changes have made it easier for consumers to leave. Subrogation typically involves fewer taxes than cancelling and opening a new loan but requires a new appraisal and notary fees.

Cancellation and New Mortgage Opening

This is the most drastic and expensive option. The borrower completely pays off and cancels the existing mortgage deed at the Land Registry (Registro de la Propiedad) and signs a completely new mortgage deed with a new lender. This route is usually taken when the borrower needs to make complex changes that go beyond simple interest rate or term adjustments, such as removing a borrower from the title (in cases of divorce) or significantly increasing the capital borrowed.

Rates and Fees

The costs associated with refinancing depend heavily on whether the borrower chooses novation, subrogation, or a new loan. The following table outlines typical rates and fees observed in the Spanish market.

Parameter	Details
Interest Rates (Fixed)	2.50% – 4.50% TIN (depending on profile)
Interest Rates (Variable)	Euribor + 0.50% – 1.00%
Interest Rates (Mixed)	Fixed period (3-10 years) at ~2.50%, then Variable
Early Repayment Fee	0% – 2% (Capped by Ley 5/2019)
Appraisal Fee (Tasación)	€250 – €600 (Paid by borrower)
Novation Fee	0% – 1% of outstanding capital
Subrogation Fee	0% – 1% (Often absorbed by new bank)
Loan Term	Up to 30 years (Max age usually 75)
Max LTV (Residents)	Up to 80% of appraised value
Max LTV (Non-Residents)	Up to 60% – 70% of appraised value
Approval Time	2 – 6 weeks

Interest rates in Spain are heavily influenced by the European Central Bank’s policy. When refinancing, borrowers must pay close attention to the APR (TAE), which includes the nominal interest rate (TIN) plus all associated costs like insurance and commissions. Under the 2019 mortgage law, banks are restricted in the commissions they can charge for early repayment or switching from variable to fixed rates.

Banks often incentivize borrowers to purchase additional products, such as home insurance, life insurance, or alarm systems, in exchange for a lower interest rate. This is known as bonificación. When calculating the true cost of a mortgage loan in Spain, it is essential to calculate whether the cost of these added products outweighs the interest rate discount.

The Legal Framework: Ley 5/2019

The landscape of mortgage lending in Spain changed significantly with the introduction of Law 5/2019, regulating real estate credit contracts. This law transposed European directives into Spanish law and increased consumer protection. It applies to all loans secured by a mortgage on residential property.

Transparency Requirements

Lenders must provide specific documents well in advance of the signing. The FEIN (Ficha Europea de Información Normalizada) serves as a binding offer containing all terms and conditions. The FiAE (Ficha de Advertencias Estandarizadas) highlights the risks, such as interest rate volatility.

The Role of the Notary

The law mandates a “cooling-off period” of 10 days (14 days in Catalonia) between the time the borrower receives the FEIN and the signing of the deed. During this period, the borrower must visit the notary alone, without the bank representative. The notary verifies that the borrower understands the contract and passes a literacy test regarding the loan terms. This service is free to the borrower and is designed to prevent abusive clauses.

Allocation of Expenses

Historically, borrowers paid all mortgage setup costs. The current law dictates that the bank must pay the notary fees, registry fees, and gestoría (administrative) fees associated with the mortgage deed. The borrower is only responsible for the property appraisal (tasación) and their own copies of the notary deed. This significantly reduces the upfront cost of refinancing compared to previous years.

Credit Assessment and Eligibility

Spanish banks are conservative. Approval for refinancing is not guaranteed, even if a borrower has maintained perfect payment history on their current loan. The new lender will conduct a full risk assessment as if it were a new application.

CIRBE Checks

The Central de Información de Riesgos del Banco de España (CIRBE) is a database maintained by the Bank of Spain. It records practically all loans, credits, and guarantees held by individuals in Spain exceeding €1,000. It is not a defaulter list; it is a risk reporting tool. When you apply to refinance, the bank checks CIRBE to see your total indebtedness. If you have high outstanding debts relative to your income, the application may be declined.

ASNEF and Bad Credit

ASNEF (Asociación Nacional de Establecimientos Financieros de Crédito) is the primary file for credit defaults in Spain. If a borrower has missed payments on bills, loans, or utilities, they may be listed here. Traditional banks generally will not refinance a mortgage if the applicant appears in ASNEF. In these cases, borrowers may need to look for specialized lenders or private equity capital, though these come with significantly higher costs.

Debt-to-Income Ratio (DTI)

Lenders calculate the borrower’s ability to pay based on their net monthly income. The standard rule is that the total monthly debt payments (including the new mortgage) should not exceed 30% to 35% of the household’s net monthly income. For non-residents, banks may be slightly more flexible with the ratio but stricter with the Loan-to-Value (LTV).

Documentation Required for Refinancing

The documentation burden in Spain is high. Banks require proof of identity, income, and solvency. All documents must be current.

Personal Identification

Residents must provide their DNI (Documento Nacional de Identidad) or TIE (Tarjeta de Identidad de Extranjero). EU citizens typically provide their green residency certificate and a valid passport. The NIE (Número de Identidad de Extranjero) is mandatory for any financial transaction in Spain.

Proof of Income

Employees (trabajadores por cuenta ajena) must submit:

• The last 3 to 6 payslips (nóminas).
• The employment contract (contrato de trabajo), specifically looking for permanent status (indefinido).
• The most recent annual tax return (Declaración de la Renta or IRPF).
• Recent bank statements showing salary deposits and expenses.
• Vida Laboral: A report from Social Security showing work history.

Self-employed individuals (autónomos) must submit:

• Quarterly tax filings (Models 303 and 130).
• Annual tax summaries (Model 390).
• Proof of social security payments.
• Bank statements for the business and personal accounts.

Property Documentation

The bank will require a Nota Simple from the Land Registry to verify ownership and existing charges. A new appraisal (tasación) is almost always required. This must be carried out by a valuation company approved by the Bank of Spain. The appraisal is valid for six months.

Switching from Variable to Fixed Rates

A primary driver for mortgage refinance in Spain is the volatility of the Euribor. Most older Spanish mortgages are variable rate (tipo variable), usually calculated as Euribor plus a differential. When Euribor rises, monthly payments increase.

Refinancing to a fixed rate (tipo fijo) provides stability. The monthly payment remains unchanged for the life of the loan or the agreed fixed period. Banks have become more reluctant to offer low fixed rates during periods of high inflation, but they remain a popular product for risk-averse borrowers.

Mixed mortgages (tipo mixto) are a hybrid solution often used in refinancing. These loans offer a fixed rate for an initial period (e.g., 5, 10, or 15 years) followed by a variable rate for the remainder of the term. This can offer a compromise between the security of a fixed rate and the potentially lower cost of a variable rate in the long term. Using a mortgage calculator is essential to compare how these different structures affect monthly cash flow.

Equity Release and Top-Up Loans

Refinancing is also a mechanism for releasing equity. This is known as ampliación de capital. If a property has increased in value or the borrower has paid down a significant portion of the principal, they may refinance to borrow more money against the home.

This capital can be used for home renovations, debt consolidation, or other large expenses. However, the Bank of Spain monitors the purpose of the loan. Banks are hesitant to release equity for business ventures or speculative investments. They prefer tangible purposes like home improvement.

If the goal is to consolidate other debts, the bank will scrutinize the application closely. While consolidating high-interest credit cards into a lower-interest mortgage reduces monthly outgoings, it extends the debt over a much longer period, potentially increasing the total interest paid. Borrowers considering this should review the implications of a debt consolidation loan in Spain before proceeding.

Non-Resident Mortgage Refinancing

Foreigners owning property in Spain face different criteria when refinancing. Spanish banks view non-residents as higher risk due to the difficulty of seizing assets abroad in the event of default.

Loan-to-Value (LTV) Limits

While residents can often refinance up to 80% of the property value, non-residents are typically capped at 60% or 70%. If the property value has dropped since the original purchase, refinancing may be impossible if the outstanding loan balance exceeds these lower LTV thresholds.

Documentation for Foreigners

Documents from outside Spain often need to be translated into Spanish by a sworn translator (traductor jurado). Lenders will request credit reports from the borrower’s home country (e.g., Experian or Schufa) to verify solvency.

The Appraisal Process (Tasación)

The tasación is a critical component of refinancing. It determines the current market value of the property, which dictates the maximum loan amount. The valuation is performed by an independent company (sociedad de tasación) registered with the Bank of Spain.

The borrower pays for the appraisal, and by law, they own the report. If the first bank rejects the application, the borrower can take that valid appraisal to another bank within six months to save costs. However, the new bank must accept the valuation company used. Most major banks accept reports from the large valuation firms (e.g., Tinsa, Gloval, Euroval).

If the appraisal comes in lower than expected, it can derail the refinancing process. For example, if a borrower owes €150,000 and wants to refinance, but the property is only valued at €180,000, the LTV is 83%. This exceeds the standard 80% limit, leading to a likely rejection or a requirement for additional guarantees.

Electronic Signing and Digital Banking

While the final signature must take place physically before a notary, much of the refinancing process is now digital. Spanish banks use secure platforms for document upload and verification. Electronic signatures are used for the initial binding offers (FEIN).

Identification verification often uses video calls or biometric data matched against the DNI/NIE. However, the Mortgage Act requires the physical presence of the borrower at the notary for the Acta de Transparencia (pre-signing meeting) and the final deed signing (Escritura).

Consumer Protection Authorities

The Bank of Spain (Banco de España) supervises the banking sector and ensures compliance with good banking practices. If a borrower feels a bank has acted incorrectly during the refinancing process—for example, by not providing the FEIN in time or charging illegal commissions—they can file a complaint with the Bank of Spain’s Market Conduct and Claims Department.

Additionally, the Comisión Nacional del Mercado de Valores (CNMV) oversees investment aspects, though the Bank of Spain is the primary regulator for mortgages. Regional consumer protection authorities (Consumo) also handle complaints regarding unfair contract terms.

Floor Clauses (Cláusulas Suelo)

In the past, many Spanish mortgages contained “floor clauses” that prevented the interest rate from falling below a certain percentage, even if the Euribor dropped significantly. European courts ruled many of these clauses abusive due to a lack of transparency.

When refinancing an older mortgage, it is vital to check if a floor clause exists. Refinancing provides an opportunity to eliminate this clause. In many cases, banks removed them voluntarily or were forced to by law, but some older contracts may still have complex interest structures. A novation is the standard way to formally remove these clauses if they persist.

Comparing Banks vs. Brokers

Borrowers can approach banks directly or use a mortgage broker (intermediario de crédito inmobiliario).

Direct Application

Going directly to a bank avoids broker fees. However, it requires the borrower to understand the market, negotiate terms, and manage the paperwork. It limits the borrower to the products offered by that specific institution.

Mortgage Brokers

Brokers in Spain are regulated by the Bank of Spain. They must be registered. Brokers can often access better rates than individuals because they negotiate in bulk. They can also help navigate complex cases, such as high LTV requests or non-resident applications. Brokers typically charge a success fee, which is only payable if the mortgage is signed. For general information on borrowing options, reviewing loans in Spain can provide a broader market overview.

Early Repayment and Compensation

One of the key features to negotiate during a refinance is the early repayment clause. Borrowers may want to pay off their mortgage faster in the future.

Under Ley 5/2019, commissions for early repayment are capped.

• Variable Rate Mortgages: The fee is capped at 0.25% of the repaid capital during the first 3 years, or 0.15% during the first 5 years. After that, it is 0%.
• Fixed Rate Mortgages: The fee is capped at 2% during the first 10 years and 1.5% thereafter.

However, for fixed-rate mortgages, the bank can only charge this fee if they incur a financial loss (pérdida financiera) due to the repayment. This occurs if market interest rates are lower at the time of repayment than the rate agreed in the contract.

Taxes on Refinancing

The tax implications of refinancing depend on the method used.

• AJD (Impuesto de Actos Jurídicos Documentados): This is the tax on documented legal acts. Since 2018, the bank pays this tax for residential mortgages.
• Novation: If the novation only modifies interest rates or terms, there is usually no AJD for the borrower. If the capital is increased, AJD may apply to the increased amount.
• Subrogation: Generally exempt from AJD if the capital amount remains the same.
• New Mortgage: The bank pays the AJD. However, the borrower must pay for the cancellation of the old mortgage deed at the registry, which is a cost often overlooked.

Refinancing for Business Purposes

Self-employed individuals or business owners may attempt to refinance a residential mortgage to inject capital into their business. Spanish banks are cautious with this. A residential mortgage is a consumer credit product protected by consumer laws. Using it for commercial purposes can complicate the legal standing of the loan.

Banks often prefer to direct business needs to specific commercial financing products rather than residential mortgage top-ups. If the purpose is clearly business-related, the bank might offer a different type of loan with higher interest rates and shorter terms, rather than a standard mortgage refinance. Comparing this with a personal loan in Spain or a business line of credit is advisable to ensure compliance and cost-effectiveness.

The Importance of the FIPRE and ESIS

Before receiving the binding FEIN, banks may provide a FIPRE (Ficha de Información Precontractual) or ESIS (European Standardised Information Sheet). These documents provide general information about the loan products available. They allow borrowers to compare offers from different banks before submitting a formal application and undergoing a credit check.

Reviewing these documents helps borrowers understand the spread (diferencial) being offered and the requirements for bonificaciones (insurance, direct debits, etc.). It is the first step in shopping around for a better deal.

Divorce and Extinction of Condominium

A common reason for refinancing in Spain is the dissolution of a partnership or marriage. If a couple owns a property jointly and one partner wishes to keep it, they must perform an “Extinction of Condominium” (Extinción de Condominio).

This legal process transfers ownership to one party. However, the mortgage debt remains joint unless the bank agrees to release the departing partner. This requires a novation of the mortgage. Banks are often reluctant to remove a guarantee (a person) from a loan because it increases their risk. The remaining partner must prove they can afford the mortgage alone. If the bank refuses, the couple may be forced to sell the property or find a new bank willing to take on the single debtor via subrogation or a new loan.

Alternative Lenders

When traditional banks reject a refinance application due to strict risk criteria (e.g., age limits, ASNEF listing, or irregular income), borrowers might consider Private Equity Lenders (Capital Privado).

These lenders are non-bank entities. They focus on the equity in the property rather than the borrower’s income. Loans from private lenders have significantly higher interest rates (often double digits) and shorter terms. They are regulated under Ley 5/2019 if the borrower is a consumer, or Ley 2/2009 for other intermediaries. While they can provide a bridge solution, they carry higher risks and costs. Borrowers should exercise extreme caution and seek legal advice before signing private mortgage contracts. Using a loan calculator with the specific high rates of private lenders is crucial to understanding the monthly burden.

Insurance Considerations

When refinancing, the existing home insurance policy usually has a clause assigning the beneficiary rights to the original bank. Upon refinancing, this must be updated.

If switching banks (subrogation), the borrower must cancel the insurance linked to the old bank and subscribe to a new one or update the beneficiary on their independent policy. Banks cannot legally force a borrower to take their insurance, but they can offer a better interest rate if the borrower does so. It is often possible to present an external insurance policy to the bank, provided it meets the bank’s coverage requirements.

Steps to Refinance

1. Review Current Mortgage: Check the current interest rate, remaining capital, and early repayment fees.
2. Market Research: Compare offers from other banks and check current Euribor rates.
3. Application: Submit income documents and ID to selected lenders.
4. Appraisal: Pay for a tasación of the property.
5. Binding Offer (FEIN): Receive the formal offer from the bank.
6. Cooling-off Period: Wait the mandatory 10 days.
7. Notary Visit: Attend the pre-signing transparency act.
8. Signing: Sign the new deed (Escritura) at the notary.
9. Registration: The gestoría registers the new charge at the Land Registry.