The subrogation is a procedure introduced and regulated in Italy with the l. 40/2007 (the so-called Bersani decree) and whose contents were then integrated into the Consolidated Banking Act. The purpose is to increase competition between credit institutions.
But what constitutes the surrogate? What are the main features of this procedure? And how can you benefit from it?
The subrogation is a procedure by which the borrower (ie, the mortgage holder) requests the transfer at no cost of his mortgage loan. The “transfer” takes place from the original lending credit institution (the old bank, surrogate) to the new incoming credit institution (the surrogate bank).
In other words, with the subrogation, there is, in fact, a replacement of the loan. The new credit institution takes over the relationship with the borrower/debtor, instead of the original bank. The occasion will obviously be useful – we will talk about it in the section dedicated to the advantages of this procedure – to be able to review the conditions of the contract, evidently in a more favorable way to the borrower.
How the subrogation works
From the above lines, it should be clear that with the subrogation a mortgage is replaced without having to cancel the original mortgage. In the same way, this will happen without the creation of a new mortgage guarantee. An operation of this type would have involved costs not irrelevant for the borrower, and with the regulatory framework provided by the subrogation can instead be carried out in a more streamlined and, above all, devoid of monetary burdens.
Technically, therefore, the subrogation qualifies as a purpose loan. The loan must be granted for an amount that will be exactly equal to the residual debt of the old loan (updated at the date on which the contract is stipulated). On the other hand, the remaining features may change, ie the duration of the loan, the amount of the installment, the rate of the credit line.
As we will deal with in the next paragraph, from what we have explained above it is quite clear that the main benefits of the subrogation are precisely linked to the possibility – for the borrower – of being able to manage the financing with greater versatility, negotiating more favorable conditions compared to the previous ones, such as, for example, the lengthening of the residual duration of the loan with a consequent lowering of the installment amount, or the change from the variable rate to the fixed-rate, or vice versa.
Finally, keep in mind that with the subrogation it is not possible to increase the amount of the residual debt and, therefore, obtain additional liquidity, but on the other hand, it is possible to subrogate the loan for the purchase of the first home without losing the tax benefits typical of the operation.
Bilateral subrogation and trilateral subrogation
The act of subrogation can be bilateral or trilateral.
As can be guessed, in the bilateral subrogation there will be the intervention of only two parts. These will necessarily be the new bank or subrogee bank, and the debtor, or borrower.
More rapid and streamlined implementation, technically the bilateral subrogation will be carried out through the stipulation of the new loan contract for subrogation or subrogation. Here you will find all the new conditions agreed between the borrower and the new incoming credit institution.
A unilateral act of receipt will then be stipulated. With this the original bank will attest the extinction of the loan due to subrogation, with a simultaneous commitment not to cancel the mortgage. This act will be authenticated by the notary and will not request the intervention of the borrower, but only of the original bank.
It follows that, in terms of immediacy and relational ease, the borrower will only have to go to the new credit institution and agree on the conditions of the new loan. It is therefore not necessary to address further relations with the bank that is being abandoned.
The trilateral subrogation instead provides for a single notarial deed before the original, surrogate bank, the new bank, subrogee, and the borrower or debtor.
Therefore, there will be no new loan agreement and a surrogate bank receipt. There will be a single notarial deed containing the new loan contract in an integrated manner with each condition determined between the borrower and the new credit institution, the receipt for the extinction of the old loan (which will be issued by the surrogate bank) and the commitment (by the same surrogate bank) not to cancel the original mortgage.
Benefits of subrogation
But why have so many Italians already benefited from the subrogation? What are the typical advantages of this contract?
For the most part, the advantages of the subrogation have already been mentioned or, in any case, their listing can be easily understood from what we have summarized in the previous paragraphs.
Schematizing the main benefits of this contractual form, we can remember how the most important and well-known advantages of the subrogation are the following:
- it is possible to move the loan from one credit institution to another free of charge, while at the same time obtaining improved conditions;
- the loan conditions offered by the new bank can be renegotiated, for example by choosing to change the technical form of the rate (with a change from variable to fixed, as many Italians have done over the last few years) or agreed a different spread (with maintenance of the same technical form of rate) or modifying the duration of the loan (mainly in extension, in order to benefit from a simultaneous lowering of the installment amount);
- it is possible to agree on a different ancillary performance regime, with the addition of possible insurance, or maintenance of the previous protections but at a lower premium compared to those linked to the original loan.
What to do to replace the mortgage
As we have already mentioned, to be able to subrogate the loan, it is sufficient to go to a new credit institution and agree with it the conditions for this purpose financing.
Precisely for this reason it is also appropriate that the choice of subrogation is preceded by a series of preliminary precautions, such as the careful verification – mainly, with the supervision and advice of an expert – of the conditions and costs of the current loan, at order to correctly interpret the expenditure structure being supported.
It is good, in this sense, not to dwell only on the nominal annual rate (that is, the rate that is applied to the loan capital). Instead it will be necessary to try to understand which are the most reliable synthetic cost indicators (such as the APR) and all the other “non-monetary” conditions that could have the advantage of modifying, such as the duration.
Once this is done, it is good to try to understand what are the advantages that you want to get with the replacement of the mortgage. For example, some borrowers may want to get only a lower rate. Others may find it more useful to change the technical form of the rate because they have changed their forecasts for the future. Still others may need additional liquidity – and therefore the subrogation will not be the prevailing technical choice. Some may wish to benefit from a reimbursement flexibility not guaranteed by the old mortgage.
Substitute or renegotiation or replacement?
In the margins of the above we have been able to summarize, we can well summarize how the subrogation is a useful way to be able to transfer the mortgage at no cost, while taking advantage of the typical benefits of the revision of the basic conditions of the loan.
However, there are some situations in which the subrogation is not feasible. The main hypothesis is linked to the possibility that the borrower needs additional liquidity: in this case, a new loan can be requested, with part of the borrowed capital (we imagine, most of it) that will pay off the debt remnant of the old mortgage. In this case, the mortgage guarantee does not remain as from original financing, but a notarial deed will be necessary to be able to extinguish the previous one and constitute the new one, with consequent extra costs.
Then there are other cases in which the borrower does not intend to abandon his “old” credit institution, but intends to stay with it and evaluate with this bank the possibility of being able to review the conditions of the loan. In this case, the borrower may request a renegotiation of the existing loan , thus seizing the opportunity to be able to change the rate, duration or other conditions. The bank, however obvious, has no obligation to renegotiate the mortgage. The exercise of commercial and negotiating pressure by the borrower, which could mean the willingness to resort to subrogation in the opposite case, could however induce the credit institution to open negotiating margins in this area.