Financial Dictionary - Novation

In the field of mortgages, we talk about mortgage novation to refer to any changes made to a mortgage agreement after it has been signed. Since the agreement is already in force, these types of changes require a new agreement between the parties to re-negotiate the agreement.

What type of changes are involved in a mortgage novation?

Some of the most common changes in a mortgage novation are:

• The interest rate initially agreed can be changed from a fixed rate to a variable one or vice versa, or the spread can be re-negotiated.
• The loan holder can be changed
• The term can be increased and the monthly payment reduced, or the term be shortened and the monthly payment increased.
• The amount can be increased, i.e. the mortgage is extended.
• The guarantees can be changed to remove existing guarantees or add new ones.
• Changes can be made to the settlement system such as adding a grace period or other related change.

Depending on the changes being made, the mortgage novation process will vary: a new public deed might need to be drawn up, it may need to be registered in the registry, taxes paid, etc.

How much does it cost to change a mortgage?

A mortgage novation involves a new transaction, re-negotiating prices and risks and usually incurs a series of novation fees that the bank charges, including:

• Mortgage novation fee
• Notary fees
• Property registration, if necessary
• Administration costs

Mortgage novation can bring a number of advantages because it is cheaper than cancelling the mortgage, it saves money and improves the mortgage terms and conditions.