Subrogation or replacement of the mortgage loan: what the differences
Subrogation or replacement? In terms of mortgages, the terms subrogation and substitution are often confused or used interchangeably. However, these two words indicate two very different financial products, both from a formal point of view and as regards the costs that the customer must bear.
So let’s see what are the differences between subrogation and replacement. In both cases, the decision to change the bank for the repayment of a home loan already in play is at stake, but the procedures are very different.
The replacement involves the extinction of the old mortgage and the simultaneous signing of a new loan agreement. The subrogation instead allows the transfer of the mortgage from one bank to another, without having to take out a new mortgage on the house.
How to choose between subrogation or mortgage loan replacement
Another important difference between these two products is given by the costs. The subrogation is completely free for the borrower, since all expenses, including notary fees, are borne by the incoming bank.
The free transfer from one bank to another is guaranteed by the Bersani Decree of 2007. The old bank also cannot oppose in any way the transfer of the loan, nor apply penalties for early repayment. With the replacement, however, the customer is called to pay the legal fees related to the cancellation of the old mortgage and any costs of investigation and real estate appraisal. However, the early termination penalty is not applied.
Both the subrogation and the replacement of the loan allow to change the interest rate, spread, duration of the amortization plan and frequency of the installments. Only those who replace the mortgage will have access to new liquidity.
Better substitute or substitution: pros and cons
In fact, the subrogation provides by law that the amount transferred is exactly equal to the residual debt claimed by the original bank. Likewise the subrogation does not allow for modification of the borrowers, who must remain the same as the previous financing.
However, it should be noted that several credit institutes offer “Surroga + liquidity” offers to overcome the amount limit envisaged by the subrogation, associating the transfer of the loan with the signing of a new loan.
Those who simply wish to obtain better repayment terms, without necessarily changing banks, can resort to renegotiation. This is a procedure that allows the modification of the repayment terms of the loan against an agreement between the borrower and the bank.
In any case it is necessary to specify that no bank is obliged to satisfy the customer’s requests. In the event of subrogation or replacement, the loan is transferred only if the bank accepts the borrower’s request. Likewise, the renegotiation provides for the modification of the repayment terms only if the two parties reach an agreement.