Renegotiating your home loan does not only mean reducing the amount of your monthly payments. It also means paying administration fees or even compensation in the event of early repayment.
It also means considering not gaining anything in the short term, but opting for a shorter credit term. Two questions, therefore, arise: when and how to renegotiate your credit? Here are the responses from Good Credit.
When to renegotiate your home loan?
When you know that renegotiating your home loan involves filing fees, it is essential to determine when is the best time to do so. Indeed, there is no question of renegotiating your loan at each drop in the interest rate, in which case the borrower would multiply the costs and reduce the benefit of his approach.
The current period seems, however, to be appropriate for inquiring about this possibility. Indeed, interest rates have been historically low for a few years and continue to drop slightly.
At their current level, rates can hardly fall further. For information, the average rate in 2019 for very good files is 1.12%. Good Credit, therefore, advises taking advantage of these, particularly attractive rates to renegotiate or redeem its credit before a potential rate hike.
How to renegotiate your mortgage?
Interest rates play an essential role in the total cost of credit. Also, renegotiating your home loan can reduce either the monthly payments or the duration of the credit. In the first case, the borrower gains purchasing power. In the second, he reimburses his mortgage more quickly.
Borrowers generally prefer lower monthly payments. If this is the apparently most favorable solution, all the proposals made by the funding body must be studied.
In fact, reducing the number rather than the amount of monthly payments makes it possible to amortize the cost of credit more quickly. Conversely, extending the repayment term does not necessarily imply an increase in the total amount of the loan. It is possible to carry out specific renegotiation simulations using calculators on the Internet.
My bank is opposed to renegotiating my loan: another option?
In the event that the lender refuses to renegotiate the mortgage, the borrower can then approach another establishment to request a loan buy-back. If he redeems his credit, he will have to pay administration fees, warranty costs and, possibly, compensation or prepayment penalties.
The early repayment indemnities cannot exceed:
- 3% of the capital remaining due before reimbursement;
- Or 6 months of interest on the principal repaid in advance, at the average rate provided for in the contract.
Good to know: allowances that can be increased
For a home loan with an adjustable-rate, the borrower may also have to pay, in addition to the prepayment indemnities, compensatory interest.
The bank can also compel the borrower to guarantee its loan. This can be done through insurance, a bond, a mortgage or even an investment (life insurance, for example). However, some guarantees generate costs, others do not. Loan insurance, for example, can easily represent 20% of the amount of a mortgage.