Real Estate Credit: Loan Renegotiation?

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Since 2012, the mortgage market has been marked by low interest rates. In April 2016, the rates were around 1.8%, a drop of 0.8 points on average compared to 2015.

The forecasts of not foresee a rise in interest rates for mortgage loans. Borrowers who have taken out a mortgage at a higher rate than the current rate therefore today have the possibility of renegotiating the interest rate of their loan downwards with their banks or credit organizations.

Why should you renegotiate your mortgage? 

Why should you renegotiate your mortgage? 

Lower interest rates allow the borrower to either:

  • Reduce the monthly loan repayment
  • Keep the same monthly payments but shorten the loan repayment period 

When to renegotiate? 

When to renegotiate? 

First of all, it is important to note that the monthly payments of repayment of a loan are composed of a share of the principal and the interests, which varies according to time. That is to say that at the start of the loan repayment the borrower will mainly repay interest while at the end of the period he will repay a larger portion of the principal.

It is necessary to refer to the amortization table provided by the creditor to see that it is therefore more financially advantageous to renegotiate his credit at the start of the repayment period rather than at the end.

Conditions for renegotiating your mortgage 

Conditions for renegotiating your mortgage 

To carry out an interesting negotiation it is preferable to fulfill the following conditions:

  • Having taken out a mortgage between 2006 and 2016
  • The interest rate on his current loan must be more than 2.5%
  • The difference between the initial interest rate and the current interest rate must be 1 point
  • Have repaid less than half of the loan

How to renegotiate?

How to renegotiate?

The borrower must contact the bank at the origin of the loan, this solution is preferred because the costs associated with the transaction will be lower than changing banks. However, renegotiating a home loan involves a multitude of costs, so it is in the interest of the borrower to make preliminary calculations to determine if the renegotiation is financially attractive.

If the original bank refuses to renegotiate the mortgage the borrower has the option to leave it and borrow from the competition at a lower rate. This last assumption involves penalties for early settlement of a mortgage (ie 6 months of interest on the outstanding capital capped at 3% of the remaining capital).

The new establishment can invoice administrative fees, you should know that it is possible to negotiate them all the more within the framework of a loan repurchase.

Last tip: The simulation is quite complex, the borrower must ask the establishment holding the loan to provide it with a schedule and a full amortization schedule in order to study if the renegotiation of the loan is financially advantageous.