On April 18 last, the Spanish Council of Ministers approved a package of tax and economic measures that is to provide an injection of 10,000 million euros to families and companies in the hope of stimulating the Spanish economy and reversing the current slow-down.

The measures, approved by Royal Decree and Law and agreement by the Council of Ministers, have two objectives: one social, to protect employees, companies and families; and another to stimulate the economy through the budget.

The most important measures can be summarised as follows:

Tax reductions

The tax reduction is one of the most significant measures contained in the Royal Decree. It will consist of a 400 euros reduction to the Income Tax applied to wage earners, pensioners and the self-employed from July. 200 euros will be applied to income in July and the rest will be applied equally to income in August and December.

According the Spanish Economy Minister, Pedro Solbes, the measure will help 16 million tax-payers and will have a favourable impact on consumption.

Free extension to mortgage terms

This is another of the initiatives in the plan. It will enable families to extend the amortisation term of their mortgages on primary homes.

The extension will be subject to the agreed price reached between the applicant and the financial entity. Those interested in doing so will have until April 22, 2010, to take advantage of this measure.

Improved liquidity for companies

Another of the measures, which will mainly affect companies, is the return of VAT. From 2009, companies will be able to accelerate returns of Valued Added Tax and, if they so wish, may choose to receive this return on a monthly basis instead of the yearly basis applicable to the majority at the moment.

In Spain, it will be possible to extend the amortisation term of a mortgage for free thanks to an agreement reached by the Spanish Ministry of the Economy and Justice, a measure which is included in the Government’s emergency plan to stimulate the economy.

The initiative is aimed at private individuals who have taken out a mortgage loan for the construction, refurbishment or purchase of a primary home issued by a credit entity, in other words, banks, savings banks, credit cooperatives and financial credit establishments.

The modification is, in actual fact, a renewal. In other words, it is a change to the original terms and conditions of the mortgage loan that the client agreed with the entity, more specifically, the terms and conditions regarding the amortisation period.

The client will be able to extend this period at no additional cost and with no notary fees, register charges nor Tax on Documented Legal Acts.

The measure will remain in force for a period of 2 years.

That said, extending a mortgage implies other factors that must be taken into consideration. By reducing the monthly repayments, one will be paying back the loan over more years, with more interest included.

Furthermore, if the financial situation of the client improves in the future and they decide to cancel the loan early, this must also cover the costs incurred by the new operation.

Steps for extending a mortgage

Before beginning the process to extend a loan, the Spanish Ministry for the Economy recommends prudence and advises that you speak with the financial entity in question and reach an agreement with them.

If the client finally chooses to opt into this initiative, the following steps must be taken. This information has also been included in a guide published by the Spanish Ministry for the Economy to explain the proposal.

The steps are:

1. Study the current situation of the mortgage loan with your financial entity.

2. Reach a mutual agreement.

3. Amend the term of the mortgage in a Notarised Deed.

4. Record the amendment with the Properties Register as a note in the margin.