Nacho has been a regular face in the European champions' squad this season, making 42 appearances in all competitions in what has become somewhat of a breakout year for the Spaniard.
The 28-year-old was patient in waiting for his chance and has proven himself a key asset to Real Madrid's successes this season - even netting four times across the campaign.
As such, the club now want to repay him with a new deal.
It is understood that once Spain's World Cup campaign in Russia comes to an end, an announcement will be made to confirm an improved contract which has been negotiated behind closed doors for some time.
Nacho has impressed in national team colours too this summer, when he has featured, scoring a sublime goal in Spain's opening match - a 3-3 draw with Portugal.
Under his new contract, Nacho is expected to earn as much €4m per year.
Nacho hasn't found his time at Real Madrid to always be as smooth as this season, rarely making it off the bench at one point in Zidane's reign, which forced him to consider an exit to continue his development.
Despite interest from Chelsea and Roma, among others, however, Nacho decided to stay in Madrid and fight for his chance.
Having joined the club at the age of 11, he has spoken in the past that his dream was always to succeed at Real Madrid.
Last season, he proved just that and looks set to be rewarded with a new deal. New boss Julen Lopetegui also looks likely to trust him as one of his first choices at the back in the coming La Liga season.