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The assumption of early repayment of a loan: operations and costs.



The assumption of early repayment of a real estate loan is to advance all the remaining installments of the loan at once before the due date that marks the amortization table of the contract. Making an early repayment has certain advantages for the borrower, although it is not 100% free.

In this post we are going to explain the operations that must be followed to make an early repayment, the advantages for the borrower (customer) of making it and the cost that may be incurred in advance of the payment with respect to the marked schedule.

Early repayment of real estate loan: regulated by law 5/2019

 

Early repayment of real estate loan: regulated by law 5/2019

The assumption of early repayment of a loan is explicitly described in article 23 of Law 5/2019 regulating mortgage-type contracts. This law is the same one under which the bank acts for the commercialization of its mortgages, and it is also the same one that regulates loans between individuals that we manage at PrestamistasParticulares.es.

You can request an early refund at any time

You can request an early refund at any time

Said regulations in article 23 clearly state that the borrower may request to make an early repayment at any time during the duration of his loan, without taking into account the time that has elapsed since the start of the loan or the time remaining for its completion and the payment of the last installment.

The lender must compulsorily accept the request for early repayment and send all documentation within 3 business days.

Below we will describe the operations that both parties must follow to make an early refund.

Operational and time frame to make an early refund

Operational and time frame to make an early refund

Lender and borrower must comply with the following schedule and rules of action to be able to make an early repayment of a mortgage loan.

  1. The period of prior communication from when the decision to make an early repayment of the loan is communicated until it is effectively carried out must be a maximum of one month.
  2. The lender must send the borrower, within a period not exceeding 3 business days, all the documentation related to the costs and the procedures to be carried out in order to execute the early repayment.
  3. The lender will clearly describe in this documentation the costs generated by repaying the loan before the date agreed in the contract.

Do not confuse refund with early maturity

Do not confuse refund with early maturity

Although they may appear to be the same concept, early repayment and early maturity are two entirely different assumptions .

As we have discussed, early repayment means advancing what remains to be repaid from a loan at once and before its end date.

However, the early maturity occurs when the client defaults on the loan, the lender loses the loan money and therefore the mortgage guarantee must be executed.

At the operational level it is important to be clear about the differences between these two concepts.

Advantages for the client when he makes an early repayment of his loan

Law 5/2019 clearly specifies in its article 23 section 7.a that the borrower has the right to see the cost of the loan reduced when making an early repayment of it. This saving is produced by the fact that it is not necessary to return future interest as marked in the initial amortization table.

In addition, since in all mortgage loans an insurance policy is taken so that the lender can protect the property that guarantees the loan, when making an early repayment the client can return the amounts corresponding to the part of the premium of the surely it remains to be enjoyed. Similarly, the client is also entitled to keep the insurance policy active by designating a new beneficiary (since the lender will already have their money back).

Direct costs of making an early repayment of the loan

Direct costs of making an early repayment of the loan

Since the lender suffers an economic loss due to the mere fact that the borrower returns the money before the agreed period (there is a large part of interest that the lender will not collect), the borrower must compensate for that capital loss that the lender suffers.

The regulations state that the lender will never be able to charge the client a higher cost than that which he would pay by returning the loan according to the agreed schedule , but it is also for loans that work with a fixed interest rate the maximum compensation for the financial loss that the lender suffers will be a maximum of 2% of the total capital that is repaid in advance.

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