Have you taken out a mortgage at a higher rate than those currently used? Do you want to know if having your current mortgage bought back is interesting for you? Svengali.com gives you some tips to help you with your calculations…
See the rates currently charged by banks. To obtain precise and personalized proposals, do not hesitate to carry out a complete simulation.
What are the costs of buying back mortgage?
When you redeem your mortgage, you have to count the costs of such an operation. The repurchase of your mortgage is only profitable for you if you save yourself more than you spend on financial costs of the operation. With a lower rate, you should get a total cost of credit that is attractive enough to offset the following costs:
– The indemnities in the event of early repayment (IRA) or penalties: they represent the total of the 6 months of interest to be followed at the time of the request for the repurchase of mortgage, but may not exceed 3% of the capital remaining due. So if you redeem your mortgage in October, the IRA will amount to the amount of interest that you should have paid until April. It is not possible for you to escape from it except if at the time of the subscription of the credit you had negotiated a cancellation of the IRA in the event of resale of the good or of advanced repayment of the credit thanks to your own funds. On the other hand, it is impossible to be exempt from IRA in the event of repurchase of the mortgage by a competing bank.
– The cost of the guarantee: a repurchase of a mortgage implies a new loan and therefore a new guarantee. Depending on your current warranty, the procedures are different:
- In the event of a mortgage, or IPPD, you must pay the costs of a show of hands and provide for the establishment of a new guarantee.
- If your current guarantee is a deposit, you recover 75% of the mutual guarantee fund that you paid when you took out the first loan. This amount allows you in large part to pay the new guarantee to put in place.
– Administrative fees payable to the bank which offers you the new loan
You can renegotiate your current rate with your bank or have your mortgage bought back by a competing bank. If your bank has no interest in renegotiating your current credit at a lower rate. She can sometimes do this to keep you as a customer! However, this remains difficult to obtain and your bank may ask you in exchange for the subscription of other products ( insurance, investment etc.).
In the case of a renegotiation of mortgage with your current bank, you do not have to pay the various costs of the repurchase of mortgage (IRA, costs of file and guarantee) but it will certainly not be able to you offer the lowest rate on the market. It’s all about negotiation!
On the other hand, competing banks are ready to make you their best offers of mortgage loans at the lowest rate on the market to count you among their new customers. These are call offers: Banks use mortgage to win new customers.
The rules of repurchase of mortgage
Depending on the rates offered on the market and the fees we have mentioned above, you need to look at the following points in order to assess the gain of such an operation and achieve the greatest savings.
Find out about your outstanding capital
From the amortization table provided by your bank when taking out your current mortgage, you can find your outstanding capital and the remaining term of your current loan. If you have lost this table, you can request it from your bank, but this service is often billed.
Evaluate the duration of your new loan
– If you want to keep the same loan term to reduce your monthly payments, take into account the following rules:
- If your current mortgage is in the first third of its repayment, you will need to obtain a new mortgage at an interest rate at least one point lower than the current loan for the transaction to be financially attractive to you. Indeed, if the difference between your current rate and the new proposed rate is not significant, the operation will not prove to be interesting taking into account the various financial costs due to the repurchase of mortgage loan (cf 1 / What are the costs? ).
- If your mortgage is in the 2nd third of its repayment but has not reached its third third, then you will need to obtain a credit rate at least 2 points lower than your current loan for this to generate a gain.
- Finally, if your mortgage is in the last third of its repayment, while redeeming it for the same duration, the operation is not financially attractive. When you repay an amortizable loan, most of the interest is in fact repaid at the start of the loan. The more you advance in your repayment, the more the share of interest in the maturities decreases. But renegotiating your credit mainly allows you to lower the interest rate, so even with a lower rate, the gain is not obvious.
– If you are ready to leave for a shorter period, (buy your mortgage while increasing your monthly payments or keeping similar monthly payments), know that the operation will necessarily be interesting. This should therefore be the preferred option if your income allows it. In fact, if your income has increased since taking out the loan, you will be able to offer yourself a shorter term and reduce the cost of your credit even more significantly, while taking out debt for less time.
In summary: At least as much as the new monthly payments proposed, you must be very attentive to the new total cost of the credit proposed to assess the gain that you will generate, without forgetting to take into account the costs inherent in the repurchase of mortgage.