Changing a mortgage to another bank can reduce the interest rate or the payment, but it does not always compensate. Before signing a subrogation, one must compare the expected total savings with the fees and costs of the operation and check that a reduction in payment does not simply come from extending the debt over more years.
The route specifically designed to transfer a mortgage is the creditor subrogation.
The loan does not disappear. It continues to exist, but the bank that has the right to collect it changes.
How it works
The new entity presents a binding offer with the proposed conditions.
It then requests the current bank for the certificate of outstanding debt. The originating entity has seven calendar days to deliver it and fifteen days to present the client with a possible modification of the conditions.
If a novation with the old bank is ultimately not signed, the subrogation can be formalized before a notary.
With it, the interest rate, the term, or both can mainly be changed.
Novation or subrogation
Novation consists of renegotiating with the bank itself.
It is usually simpler and normally involves fewer costs, but it depends on whether the current entity accepts the new conditions.
Subrogation adds competition: it allows taking the mortgage to an entity that offers better conditions.
What fees may exist
In mortgages signed since June 16, 2019, the limits depend on the type of loan and the moment the operation occurs.
In variable mortgages, the compensation for early repayment may be limited to 0.25% during the first three years or to 0.15% during the first five, according to the option provided in the contract. After that, it may be zero.
When a subrogation or novation transforms a variable mortgage into a fixed one or into a type with a first fixed period of at least three years, current legislation limits the compensation to 0.05% during the first three years and to zero thereafter.
When it really compensates
There is no universal "minimum savings."
The correct calculation is to compare everything that the change will cost with the savings in interest and other costs during the time the client expects to keep the mortgage.
If the accumulated savings take many years to exceed the subrogation costs and it is expected to sell the property before, it may not compensate.
It is also necessary to avoid comparing only monthly payments. A lower payment achieved by greatly extending the term can end up increasing the total interest paid.