The cost of expanding the existing mortgage
In the situation that needs financing, there are some who think that since they are paying a mortgage every month, the easiest is to expand it and thus have only one payment. But be careful, it is not always the cheapest option and can lead you to be paying more. How is it possible? You should know that the mortgage extension operation, which is also known as “novation,” entails expenses that may exceed the interest on a personal loan. The costs of a novation are as follows:
- Novation – The novation commission is usually contained in the contract and is usually up to 1% of the capital that remains to be amortized.
- Appraisal – Since the mortgage is increased the entity can request a new appraisal of the home. The cost depends on the appraisal agency chosen, since each has its own rates.
- Agency – For taking care of the necessary procedures before the different institutions, an amount of money is usually charged, the price is freely set by each company.
- Notary – A new visit to the notary carries other expenses. They usually range between 0.2% and 0.5% of the outstanding capital.
- Property registration – You have to pay to modify the mortgage notation that weighs on a property. This entails approximately half of the notary’s expenses.
- Tax – The tax on documented legal acts is established according to each autonomous community in which the operation is carried out. The average is 0.5%.
Much higher payment term
Another problem with the novations is that it is possible for the bank to take advantage of the renegotiation of the current mortgage contract to raise the differential or change some other clause in its favor.
It should also be borne in mind that this operation entails a much higher repayment term and therefore, may end up being more expensive. Finally, the banking entity may refuse to grant the extension. Having a mortgage contracted does not mean that the bank is willing to extend it. You may consider that your financial situation is not the most appropriate to assume that cost, so you can deny the extension.