Should You Refinance Your Spanish Mortgage?
Refinancing can save you thousands of euros over the life of your mortgage. But it is not always the right move. The costs of refinancing in Spain need to be weighed against the potential savings. Here is how to decide.
When Refinancing Makes Sense
Consider refinancing when:
- Your current rate is 1%+ above what is available today
- You want to switch from variable to fixed to lock in current rates
- You want to extend or shorten your mortgage term
- Your financial situation has improved and you qualify for better terms
- You want to release equity for renovations or another purchase
Three Ways to Refinance in Spain
1. Novacion (Modification with your current bank)
You renegotiate terms with your existing bank. This is the cheapest option because you avoid a new mortgage deed. The bank may charge a renegotiation fee, but notary and registration costs are lower.
Typical cost: 0.1-0.5% of the outstanding balance plus reduced notary fees.
2. Subrogacion (Transfer to a new bank)
You move your mortgage to a different bank that offers better terms. The new bank handles most of the paperwork. Your current bank has 15 days to match the new offer.
Typical cost: 0.5-1.0% of the outstanding balance. The new bank often covers part of the costs to win your business.
3. Cancelacion y nueva hipoteca (Cancel and new mortgage)
You cancel the existing mortgage and take out a completely new one. This is the most expensive option but gives the most flexibility. You can change everything: bank, terms, amount, and conditions.
Typical cost: 1.0-2.0% of the outstanding balance plus full notary and registration fees.
Costs to Factor In
Before refinancing, calculate these potential costs:
- Early repayment penalty on your current mortgage (check your contract)
- New mortgage arrangement fee (0.5-1.0%)
- Property valuation: 300-500 EUR
- Notary fees: 500-1,500 EUR
- Land registry fees: 300-800 EUR
- Gestor fees: 300-500 EUR
The Break-Even Calculation
Add up all refinancing costs. Then calculate your monthly savings with the new rate. Divide the total cost by the monthly savings. This gives you the number of months to break even. If you plan to keep the property longer than the break-even period, refinancing makes financial sense.
Example: refinancing costs 5,000 EUR, monthly savings are 150 EUR. Break-even: 33 months. If you will keep the property for more than 3 years, go ahead.
Variable to Fixed: A Common Move
Many borrowers who took variable mortgages before 2022 are now switching to fixed rates. The 2019 Mortgage Law made this easier by capping early repayment fees on variable mortgages at 0.25% (first 3 years) or 0.15% (first 5 years). After 5 years, there is no penalty for switching from variable to fixed.
Use our free calculator to estimate your total costs and see if refinancing will save you money in your specific situation.