How to discharge a mortgage loan in Spain

Raymundo Larraín Nesbitt, September, 11. 2023

Lawyer Raymundo Larraín outlines the procedure to cancel your mortgage loan in Spain attracting little to no tax.

How to discharge a mortgage loan in Spain

Marbella-based Larraín Nesbitt Abogados (LNA) has over 20 years’ taxation & conveyancing experience at your service. We offer a wide range of 50 legal and corporate services. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain.

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By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8^th of Septermber 2023

Introduction

The sharp rise of interest rates over the last 12 months, has prompted scores of borrowers to look into cancelling their Spanish mortgage loans. This is done to avoid servicing large monthly repayments.

Mortgages, besides their obvious purpose of financing a house purchase, have long been used by lawyers and accountants as a useful tool to reduce clients’ tax burden. With careful forward tax planning they prove extremely helpful to mitigate client’s overall taxes. It is for this very reason that even wealthy individuals (that do not really need them) actually apply for them to benefit from the lenient tax breaks available.

However, when an inflection point is reached of high interest rates – such as the one we are now in – clients are inclined to re-assess their tax planning strategy and lean to discharge them.

Additionally, on selling a property, a buyer, or his lawyer, will demand from the seller they cancel the existing mortgage loan. Properties need to be sold with a clean title.

With this in mind, in today’s article we give a brief overview on the procedure to fully discharge a mortgage loan in Spain. Unlike other countries, the conveyance procedure involved is not automatic and requires the input of a seasoned lawyer. You will need to instruct a lawyer to carry it out on your behalf (with a specific power of attorney, or POA). This is not a legal procedure that can be followed by laymen.

Preliminaries

Your lawyer, in use of a specific POA will contact your lender and start the procedure.

The bank needs to agree to it. The borrower is free to choose a notary of his choice to formalize the procedure. The legal representative will sign several documents with the lender. Almost every mortgage loan applies a small penalty for early redemption.

The borrower will finish paying off the balance presented by his lender, with penalty interests rolled on top.

Signing the deed

A bank’s representative will then attend the notary of choice and sign a deed fully discharging the mortgage loan.

In plain English, the property is now legally ‘freed’ from the encumbrance. But it doesn’t stop here.

Land registry

The notary deed then needs to be lodged. Once done, the property will appear as free of charges and encumbrances.

How long does it take?

Overall, you are looking at 2 to 3 months on average, always dependant on how fast a lender accommodates you.

Conclusion

Mortgage loans in Spain are not cancelled automatically when you finish paying them off.

Moreover, banks are perfectly content leaving a mortgage charge against a property indefinitely (as it improves their ratios in investor’s eyes), even when the mortgage was paid off long ago. Lenders are in no rush whatsoever to discharge them, and it takes the proactivity of a lawyer to gently nudge them time and again to cancel them over the course of several months. Without a shadow of a doubt, one of the most aggravating tasks that falls on lawyers, is precisely this; assisting borrowers to cancel them as there is a huge amount of red tape involved.

On paying off a mortgage loan, you ought to cancel your mortgage loan. Banks do not do this automatically.

On selling property in Spain, you need to cancel a mortgage loan. No buyer will acquire a property with an existing mortgage against it. A buyer cannot get a new mortgage on the property if there is already one showing up in the title, that is why it must be cancelled.

In a context of high interest rates, most financial advisors will recommend you to cancel them, avoiding hefty monthly repayments which in fact negate the tax benefit sought on the mid to long run.

Bottom line, whatever the reason for cancelling a mortgage loan, you need to hire a lawyer.

Larrain Nesbitt Abogados offers a competitively-priced conveyance service: Discharging a mortgage loan.

At Larrain Nesbitt Abogados (LNA) we have over 20 years’ experience assisting clients buying, selling, or renting properties. We can also offer you a competitively priced accounting service to file your landlord taxes every tax quarter nationwide. We are also specialized in taxation, immigration & residency visas. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88, or by completing our contact form to book an appointment.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. Ní neart go cur le chéile. VOV.

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