When you want to improve your mortgage terms, there are two main paths that are frequently confused: modifying the loan with your current bank and switching to another lender. Both pursue a similar goal (improving your mortgage situation), but they involve different processes and, at times, different outcomes.
What a mortgage modification is
A mortgage modification (called "novación" in Spanish) changes the terms of your mortgage with the same bank that already granted the loan, without switching institutions. Through a modification you can renegotiate, among other things:
- The interest rate (switching from variable to fixed, for example, or improving the spread).
- The repayment term (extending or shortening it).
- The repayment method.
- Adding or removing co-borrowers on the loan.
- Increasing the outstanding principal (for example, to finance a renovation).
The key difference from switching lenders
While a modification keeps the loan with the same bank (only its terms change), switching lenders means transferring the mortgage to a different institution, which takes on the outstanding debt under new terms negotiated with it. The choice between the two largely depends on whether your own bank is willing to match or beat the terms you could get elsewhere.
When it makes sense to negotiate a modification first
Before starting the longer process of switching to another bank, it's usually reasonable to first try negotiating a modification with your current lender, using competing offers as leverage. Many banks would rather improve terms for an existing customer than lose them to a competitor, which gives you some negotiating room without needing to switch institutions or go through the paperwork involved in a transfer.
The costs of a modification
The Real Estate Credit Contracts Law also capped the fees banks can charge for certain types of modifications (especially those related to switching from a variable to a fixed rate), although other costs may still apply (notary, registry) depending on the specific scope of the changes being negotiated.
What documentation you need to prepare
To negotiate either option from a position of strength, it's worth having your current mortgage details ready (outstanding principal, remaining term, current interest rate), as well as, if possible, a reference offer from another institution, since having a concrete alternative on the table tends to substantially improve your negotiating position with your own bank.
Calculate the potential savings before negotiating
Before sitting down to negotiate, it helps to have clear numbers in hand. Our mortgage calculator lets you compare your current payment and total cost with the scenario you expect to achieve after the modification or switch, so you know exactly how much it's worth negotiating for.