Taking over a mortgage is usually the best option

When it comes to purchasing a property, there’s a smart financial move you might not have considered: taking over the current owner’s mortgage instead of signing a new one. This process, known as subrogación in Spanish, can offer significant benefits and potentially save you a substantial amount on taxes.

Imagine you’re on the brink of finalizing a property purchase and require financing. Before approaching banks or financial institutions for a new mortgage, it’s worth investigating whether the current owner has an existing mortgage that meets your requirements. If so, you may have the option to subrogate the mortgage, subject to the lender’s approval.

Here’s why this approach can be advantageous:

  1. Tax Savings: When a new mortgage is issued, a regional tax called Impuestos sobre Actos Jurídicos Documentados (AJD) is levied. This tax is based on the value stated in the notarial documents, typically calculated on the mortgage amount plus three years’ worth of interest. By taking over the existing mortgage, you can bypass this tax altogether, saving you a significant sum.
  2. Exemption from AJD: Transferring an existing mortgage to your name is exempt from AJD tax, providing a notable loophole in the tax system. Spanish banks generally support mortgage subrogation, provided you meet their lending criteria. However, opting for a new mortgage would entail paying AJD.
  3. Flexibility in Mortgage Terms: If you need to modify any terms of the mortgage, such as increasing the loan amount or adjusting repayment terms, you can negotiate directly with the mortgage holder before completing the subrogation process. Certain modifications, such as changes to the interest rate or extending the repayment period, are exempt from AJD.
  4. Beware of Valuation Impact: It’s essential to exercise caution when requesting modifications to the mortgage terms, particularly if it involves increasing the loan amount. If a new valuation is required and used to adjust the mortgage terms, the tax authorities may view it as a base modification of the mortgage, triggering additional AJD payments.

At Cervantes Alarcón Consulting, we specialize in assisting clients with property purchases and navigating the complexities of mortgage negotiations in Spain. Our expertise extends to leveraging strategies like mortgage subrogation to help our clients save money. Contact us today to explore how we can support your property acquisition journey—this article merely scratches the surface of the valuable insights and cost-saving techniques we offer!