Average interest rates are low and did you take out credit when it was higher? Renegotiating your credit can be an interesting solution. This operation allows you to benefit from a more advantageous rate to reimburse the current one.
The very low level of mortgage interest rates is a boon for mortgage borrowers
The solution naturally goes through renegotiating the loan. But this choice is not always interesting from a financial point of view and therefore merits prior consideration.
First of all, remember that the monthly repayment of a conventional loan is made up of interest on the one hand and a portion of the capital on the other. The respective share of interest and capital varies over time: at the beginning, mainly interest is reimbursed and at the end, almost only capital. A renegotiation is therefore a fortiori more interesting in its first half of life.
The renegotiation also involves a series of costs and disbursements which are likely to cancel the financial interest of the transaction.
The least expensive solution naturally consists in persuading his banker to replace the old loan, a less expensive loan or to modify his financial conditions by an amendment. But nothing obliges him to accept this request and most financial institutions are reluctant to this kind of renegotiation. It is therefore necessary to be persuasive and to assert your profile of “good customer” and the benefits that the bank can expect.
If this request is not successful, it is preferable to inquire with other banking establishments and financial organizations and in this case to carry out a credit repurchase. It consists of signing a new loan which will repay the existing one at a more advantageous rate.
- However, it is more costly than a simple renegotiation
- In addition, the change of bank requires the establishment of a new account with the various related costs, without forgetting the reconstruction of a relationship of trust and the subscription of other savings products and services.
- It is also not recommended if you plan to resell the property in the near future (less than 2 years), as you would then return at the start of the loan cycle, when the loan costs the most.
You will often also have to pay your former banker the penalty for early repayment capped at six months of interest on the principal owed, within the limit of 3% of this same principal. But it is true that an increasing number of contracts now exclude any such penalty.
The law on savings and financial security of June 25, 1999 removed the penalty when the repayment is consecutive to certain events affecting the borrower or his spouse namely: change of place of professional activity, death or cessation forced professional activity.
This will also be the time to take stock of borrower insurance. And it is very likely that the death insurance you will need to purchase will be more expensive than five or ten years ago. Likewise, there is nothing to say that the coverage against unemployment will be so extensive. These are elements to take into account before embarking on a renegotiation.
Conclusion: the renegotiation of the loan is only valid financially if two conditions are met.
- The differential rate between the old loan and the new one must be significant. At least one point …
- Renegotiation should not occur too late in the repayment schedule.
As the simulations are fairly complex, it is better to ask the establishments contacted to provide a precise timetable accompanied by a precise amortization table.
Use of an intermediary to negotiate with several banks is recommended
Last advice: if, after your calculations, you decide to send a renegotiation request to your banker, do not especially neglect the preparation of your file (salary slips, account statements, etc.). This must be done with the same thoroughness as when you took out your first loan.
The support of a broker is often decisive in these operations.