Come on, this sounds like a notary's word, but in the end, it's simpler than it seems. Imagine you have the mortgage of your life (or your nightmares, depending on the month) and, for whatever reason, the terms no longer suit you. Well, this is where the famous novation comes in: basically, it's talking to the bank and changing the terms of the contract... without having to take out a new mortgage. There's no need to change banks or get into more trouble than necessary; just tweak what you already have.
And why would you want to novate your mortgage? There are a thousand and one reasons:
- Change the interest rate: you might get tired of the variable rate and prefer the peace of mind of a fixed rate... or just the opposite.
- Play with the terms: maybe you want to pay less per month and extend the terms, or you're one of the brave ones who prefers to tighten their belts and pay off sooner.
- Release some savings to reduce debt: if you get an inheritance or win the lottery, you can put money in and reduce what you owe.
- Eliminate hefty fees: if you signed with unpaid penalties at the time, maybe you can negotiate now and soften the blow.
- Add guarantors or collateral: sometimes you have to bring in extras to get the bank to take a more favorable view of you.
Now, don't think you'll just walk into the bank and it'll all be a laugh. The bank will take a good look, review your credit history, see if you're paying or if you're one of those who forgets about the mortgage like the gym, and decide whether to give you the OK. If there's an agreement, it's time to go to the notary. It's legal, it's necessary, and there's no getting around it.
Be careful with the costs, because they're not free here either. Between the novation fee (yes, there usually is one), the notary fees, and what's paid at the Property Registry and the agency, the joke can be quite expensive. None of this is free, in case you were wondering.
The good thing about novation? Well, above all, it gives you room to adapt. If life throws you lemons (less income, a growing family, new bills, etc.), you can adjust your mortgage and breathe a little. And if the move works out well, you even save on interest or fees... but it's not magic either; you have to do the math and see if it's worth it.
In fact, if novation doesn't convince you, there are alternatives: you can "subrogate" (take the mortgage to another bank that treats you better), or consolidate all your debts into a single loan and stop going crazy with a thousand bills.
In short, novation is like tweaking your mortgage so it doesn't choke you. But, as with everything, before signing anything, it's best to get out your calculator and make sure the change of look is worth it. Because if not, you might end up paying more.