Measures approved by Cabinet include cutting borrowing costs over five years to offset higher interest rates.
After weeks of talks between the government and banks, Spain's cabinet is expected to approve the measures on Tuesday, which include cutting interest rates over a five-year grace period.
The measures make Spain one of the first euro zone countries to cushion the blow from rising mortgage costs, which struggle with record 10.6 percent inflation from aggressive rate hikes. The ECB has raised interest rates by 2 percentage points so far this year.
Spain is particularly vulnerable to ECB rate hikes because about three-quarters of mortgage, holders have adjustable-rate loan agreements linked to monetary policy, although they typically adjust only once a year.
Under the proposed measure, the most vulnerable households (defined as those earning less than 25,200 euros a year) could see their interest rate cut to Euribor -0.1 percentage points. Many mortgage holders are paying 1 percentage point more than Euribor, an interbank-offered rate in anticipation of ECB action.
A household with a 120,000-euro mortgage and a monthly repayment of 524 euros linked to the ECB's latest rate hike will halve to 246 euros, the economy ministry said.
Borrowers will be able to extend the term of their loans for up to seven years under the proposed changes, which include changes to existing codes of best practice in the mortgage market.
On November 18, the 12-month Euribor rate was at 2.84%, while the ECB's main deposit rate stood at 1.5%. The ECB is likely to raise borrowing costs again in mid-December.
Higher-income families, earning up to €29,400 a year, can freeze their monthly repayments while enjoying a seven-year loan deferment.
Additionally, Spain will eliminate fees for prepaying loans and converting adjustable-rate mortgages to fixed-rate products.
The Bank of Spain said earlier that a 3 percentage point rise in interest rates would increase the number of stressed households, which spend more than 40% of their income on debt repayments, by 400,000, to one in seven.
The measures are voluntary, but government ministers have made clear they want lenders to follow suit.
