When a borrower wants to review the terms of his mortgage and especially renegotiate its rate down, he has the opportunity to apply to another bank that the one that granted him his loan. This option is available if the bank refuses the client’s request for renegotiation, but also when another financial institution offers better terms than current ones. The borrower can then obtain new financing tailor-made, thanks to a repurchase of mortgage. This operation, carried out by a specialized credit agency, can represent many advantages and especially to improve the financial situation of the household.
The difference between repurchase and renegotiation of real estate loans
The renegotiation of a mortgage consists in going to see the banker with whom the mortgage agreement was signed, in order to obtain a more advantageous interest rate. The financial institution has no obligation to accept this renegotiation, which is why, in case of refusal, the borrower may move to another bank or credit institution. If in the first case, the approach is to review the terms of repayment of the credit of his contract, namely the rate, the duration, the amount of the monthly payment, the second option is the signing of a new contract. For renegotiation with his bank, it will be enough to sign an amendment, while for a transaction by a competing institution, it is a repurchase of mortgage.
The early redemption of a home loan entails fees, known as early redemption fees (IRA) or prepayment penalties (PRA). They must appear on the credit agreement at the time of signing. These fees are capped at 3% of the outstanding capital and at 6 months of interest of the sums reimbursed at the average credit rate. Another category of expenses is to be expected when the real estate is the subject of a mortgage, it is about the expenses of guarantee which are declined in expenses of release or guarantee.
On the other hand, there are two categories of home loan repurchase. The first is the purchase of a home loan only, that is to say that only this one will be included in the setting up of more advantageous conditions, and will profit from a more interesting rate, allowing it to save money. The second type of real estate loan buyback is a combination that includes a mortgage and also other loans and debts. These may include consumer loans, personal loans, revolving loans, family debts, overdrafts, late payments, etc. In order for the latter to be part of the real estate buyback category and to benefit from all these advantageous conditions, it will however be necessary for the real estate outstanding to be equal to or greater than 60%.
All these transactions can be carried out by the bank granting the initial credit, or by another bank. Other market players can also intervene to carry out this type of transaction, it is brokers, banking intermediaries who are agents with several banking partners. It does not matter which organization will be responsible for carrying out the operation because the ultimate interest is to be able to benefit from more advantageous conditions, as much in terms of the interest rate, as the repayment duration and the amount of the monthly payment.
It should be noted, however, that in the case of renegotiation, the primary motivation of the borrower is to lower the interest rate in order to achieve savings, while in the case of a mortgage repurchase, the The aim is above all to rebalance the household budget and to develop a reduced monthly payment. The initial duration of the credit is generally extended, which will have an impact on the total cost of credit.
The operation of the repurchase of mortgage by another bank
In the event that the bank agrees to review the terms of the credit agreement signed at the time of the loan agreement, it is important to play the competition. The conditions for granting the mortgage, which are in this case the duration, the monthly payment, the fees and the interest rate, can all be reviewed, especially with the decline in rates seen in recent years. The financial possibilities are changing and the contract is certainly less advantageous. Renegotiation is therefore strongly advised, and in case of refusal of the bank to review the initial conditions of the loan, a new proposal can then be made by a competing bank.
Closing the old credit to subscribe to a new loan agreement has certain advantages. While the conditions of the contract will be more advantageous, but also the monthly payments will be much more adapted to the budget. The principle of the operation is simple, since it is sufficient to apply to a competing financial institution by requesting a real estate loan redemption. Either the borrower goes directly to an agency, or he can make an online application. These two steps are completely free and without any commitment.
When the borrower wants to integrate in its real estate purchase, its loans and outstanding debts, it will be able to benefit from the low rates of the real estate market. Going through a broker or an intermediary in banking operations can limit all administrative procedures, since it is the credit agency that will take care of everything. He will take care to negotiate the contract of the mortgage, to reconsider the amount of the single monthly payment, to review the interest rate and of course, to readjust the repayment period.
If the real estate serves as collateral, then it is put in mortgage, and the repurchase becomes a repurchase of mortgage credit. The advantage is that it can then benefit from very interesting conditions, including a low interest rate, but also a refurbished duration.
Once the borrower has chosen the credit institution, he will take over the remaining capital of the initial loan. To this will be added the prepayment indemnities (IRA) that are provided for in the contract. This point is important because it will be necessary to check, before any step if the operation is interesting, that is to say if the gain obtained is worth it. For this, we must take into account certain criteria that are the life of the credit. If it is in the first third, or even the first half of its repayment time, the operation is interesting. Because it is only in this case that the prepayment indemnities are covered. These fees, as well as the bank change fee will be integrated into the financial capital of the new credit subscribed.
It is important for the borrower to know that the longer the term of a loan, the higher the cost, and the shorter the cost, the lower the cost. However, having monthly credit terms consistent with one’s income greatly improves the household’s daily life and purchasing power. This avoids being in a difficult situation, or even being over-indebted, because a lower monthly payment, even if the duration is lengthened, makes it possible to lower the debt ratio. It is for this reason that the repurchase of credit does not necessarily make money, but rather a financial comfort. Before venturing into such an operation, one must be vigilant and be well informed about one’s profit.