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Advantages and disadvantages of extending the mortgage

13/10/2020

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If you are considering extending your mortgage on your home, for example, to buy a second home on the Costa Blanca, you should know that you can request these modifications:

Increasing the capital: requesting more money means paying more each month if you do not also request a term extension. You should bear in mind that, when you apply for an increase in the capital of the mortgage, the monthly instalment will be increased and you will have to pay the main debt plus the new amount requested with the extension.
Extending the term: when you apply for more years to repay the loan, you will reduce your monthly instalments. This option is only recommended if your family's financial situation is very unfavourable and it is very difficult for you to pay the loan instalments on time.
Extending the capital and term: when you apply for more money and more time to repay the loan, you get more capital without increasing the monthly instalment in exchange for paying the loan instalments for longer.

Your bank must decide whether the operation is viable or not. To do this, it will assess, among other conditions, the time you have been paying the loan, your level of risk and your age, and those of the other mortgage debtors. If they consider the operation to be viable, they will also modify the conditions of the loan: for example, modifying the interest rate of the mortgage. You may also be asked to provide a guarantor or backer for the mortgage.

What are the advantages of extending the mortgage?

  • It is easier than making a mortgage subrogation, which is taking the mortgage loan to another financial institution.
  • It is cheaper than applying for a personal loan or cancelling the mortgage.
  • It gives you more financial freedom.

What are the disadvantages?

  • The requirements for granting it are more demanding.
  • By extending the term, you increase the total amount of interest you end up paying at the end of the loan period.
  • You will have to pay expenses for the novation, which is the operation of modifying the conditions of a mortgage loan: the commission that ranges from 0.1% to 1%, the notary's fees that cannot exceed 0.5% of the amount pending payment in any case and are divided equally between you and the bank, the management fees that range from 150 to 350 euros, and the new appraisal of the home if the previous one is more than 6 months old and which is between 200 and 400 euros. The Tax of Documented Legal Acts, from the entry into force of the new Spanish mortgage law, is assumed by the financial entity.
If you are more than 20 years away from paying your mortgage in full, if you will end up paying it off at 70 years of age or more, or if you have other long-term debts; it is very difficult to get authorisation to extend your mortgage.

At ESPHOUSES, to get you a mortgage for the purchase of your home, of up to 80%, and with the best conditions on the market, we collaborate with the main banks in Spain: Banco Santander, Banco Sabadell, La Caixa, Bankia, Bankinter and Deutsche Bank. Ask us.


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