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Financial Dictionary - Subrogation
Subrogation
The term subrogation refers to a change in the terms and conditions of an agreement consisting of substituting one person for another in the fulfilment of an obligation or the exercise of a right.
One of the most common uses of subrogation is in mortgage contracts. The subrogation of a mortgage can refer to a switch in the role of creditor or debtor, in other words, a change of bank to improve the terms and conditions or a change in the mortgage holder.
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Creditor subrogation
This type of subrogation is the most common and consists of transferring the mortgage to another bank to find better terms and conditions without having to cancel it or arrange it from scratch.
The customer may benefit from lower fees or lower interest rates. Mortgage subrogation is not subject to any tax but it does involve notary, agency and registration fees and the subrogation fee established in the agreement.
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Debtor subrogation
This case is very common when buying a home that already has a mortgage and involves a change of owner. When this happens, the bank must analyse the risks to decide whether it will be able to accept the new debtor.
This option allows us to save paying any taxes, but we will have to pay notary, agency and registration fees and the subrogation fee established in the agreement.
Before subrogating a mortgage, we must investigate the new terms and conditions and the expenses that could be incurred to decide whether this is the best option.