Who pays the mortgage cancellation fees?

4 October, 2023 | M Aparicio

The satisfaction of paying off your mortgage is a significant financial achievement. But who bears the cancellation costs? We’ll tell you all about it here, at Hipotecas Plus!

You say goodbye to your mortgage.

Canceling a mortgage is an exciting moment in anyone’s life, especially if it has been a significant burden for many years. It’s the culmination of years of effort and financial commitment. However, as with many financial transactions, there are associated costs that we must face.

Let’s see who usually takes on the responsibility for these costs and what you can expect when canceling your mortgage.

What is meant by mortgage cancellation fees?

Mortgage cancellation fees refer to the costs associated with terminating a mortgage loan. These can vary based on your location and the mortgage contract you signed initially, but they often include:

1. Notary Fees: The charges the notary bills you to formalize the cancellation process.
2. Registration Fees: The costs to register the cancellation in the property registry. This registration is a crucial step as it ensures the property is free from liens.
3. Early Cancellation Fee: In some cases, if you cancel the mortgage earlier than agreed, the bank might charge you a fee. We’ll discuss this further below.
4. Administrative Fees: Charges for processing documents and related administrative work. This is what the manager undertakes to handle all the administrative aspects of the cancellation.

Approximate costs of canceling a mortgage:

It is essential to formally cancel the mortgage in the registry to confirm that it is free from liens. For this, you’ll need a notary, a property registrar, and an administrator to manage all the administrative details. On average, we’re talking about a cost of 1,000 euros.

Notary:

The notary will charge you a minimum of 90 €, which is the minimum cost stipulated by law. This amount can easily be exceeded. It positively correlates with the mortgage debt with which your mortgage loan was formalized. This means, the more money you borrowed, the higher the notary fees will be upon cancellation. The average notary costs are around 450 €.

Property Registrar

The registry. With a minimum cost of 25 € and an average price of 250 €. Just like with the notary, the price is related to the amount of money you borrowed for the mortgage. The registrar will remove the mortgage lien from your property.

Manager or Administrator for all procedures

The administrative agency. They will handle all the administrative processes of canceling the mortgage. Your bank might offer to manage this for you. However, we advise you to inquire about independent administrative agencies outside your bank because you might save money. Their fee typically falls between the notary and registry costs, with an average price of around 250 €. You can also choose to handle the administrative procedures yourself and save on administrative fees.

Is there any tax associated with canceling the mortgage?

Up to now, we have only detailed the associated costs: those of the notary, registry, and administrative agency.

Now, let’s discuss taxes. Canceling the mortgage does not involve paying any tax.

The registry cancellation of the mortgage is linked to the IAJD, Tax on Documented Legal Transactions. As consumers, we are exempt from this tax, except in the Basque Country (in this autonomous community, you have a payment of 0.5% of the mortgage if it’s not your primary residence).

Therefore, no tax is paid for the registry cancellation of the mortgage. However, before the Tax Agency, you must submit the IAJD model 600. With this procedure, you are declaring that your mortgage is settled.

Responsibilities: Seller vs. Buyer

The costs of canceling the mortgage must be paid by the holder of the canceled mortgage. The allocation of mortgage cancellation fees typically depends on whether you are selling your property or simply canceling your mortgage:

When You Sell Your Property:

• Buyer: In most cases, the buyer assumes the responsibility of withholding from the seller the money for the notary and registration fees associated with the seller’s mortgage cancellation. If the buyer does so with a mortgage, their bank will handle the management. If the payment is made in cash, it is advisable for the buyer to also handle this management either directly if they have the knowledge or through a manager.

• Seller: Typically, it is the mortgage holder who will pay the mortgage cancellation fee, but as a seller, you might be responsible for paying the early cancellation fee if the original loan contract stipulated so. Additionally, you must ensure that the property has no outstanding debts, as these could be deducted from the sale price.

When You Cancel Your Mortgage Without Selling:

• Mortgage Holder: If you are simply canceling your mortgage without selling the property, then you will be responsible for all the cancellation fees.

Commission for Mortgage Cancellation

The bank will not charge you a fee if you pay as stipulated from the beginning to the last installment of your mortgage.

However, if you make an early repayment of the mortgage, the bank may charge you a commission. At the end, we will see an important note about the non-payment of the commission for early repayment of a variable mortgage during 2023.

The early repayment commission will depend on the extraordinary payment you advance and the date on which the mortgage loan was formalized.

Let’s see:

• Mortgages signed before December 9, 2007: They can charge you 1% for early repayment.

• Mortgages taken out between December 9, 2007, and June 15, 2019: 0.5% in the first 5 years of the mortgage term and 0.25% in the following years.

• Mortgages signed from June 16, 2019 onwards:

? If we’re talking about variable mortgages, the commission rate is 0.25% if repaid within the first three years of the term, or 0.15% within the first 5 years. Once the 5 years have passed, no commission can be charged, meaning it would be 0%.

? For fixed mortgages: a commission can be charged for early repayment of up to 2% in the first 10 years and 1.50% if repaid after these initial 10 years

Important! Up until now, banks used to charge fees for early mortgage repayments. However, throughout the entire year of 2023, this practice will be prohibited for variable mortgages, making it an opportune time to make an early payment if you have the resources available. The government eliminated the fees for early repayment of variable mortgages until December 31, 2023, through the Royal Decree-Law 19/2022. Here’s the link to the decree where you can read about this suspension of the commission charge. It’s found in the First Additional Provision

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