Low interest rates encourage homeowners to renegotiate their home loans. The repurchase of mortgage offers the possibility of repaying its loan by means of a new credit less expensive, either to reduce the amount of the maturities, or to shorten the duration initially planned. Is it always a good deal?
The repurchase of mortgage loans as part of a renegotiation of the interest rate
A credit buyback operation is interesting if the number of years remaining is greater than the number of years passed. Clearly, this means that if the initial term of the loan is 20 years, it will not be interesting to renegotiate the mortgage if it remains less than 10 years before the end of the loan.
In fact, the borrower will have already paid the majority of the interest, and he will only have the capital to repay. So, why pay for new ones?
The outstanding capital must be greater than 50 000 euros for a real profit, and the difference in rates must reach at least 1 point. If the borrower has taken out a mortgage at 3.5%, the new rate should be at most 2.5%.
The repurchase of mortgage credit must also take into account the costs borne by the borrower:
• the prepayment penalties provided for in the contract, although regulated by law, compensate the lender for the loss; they are limited to 6 months of interest or a maximum of 3% of the outstanding capital;
• any warranty costs.
The repurchase transaction must cover these costs. We must not lose sight of the total cost of credit: the longer the duration, the higher the cost.
The repurchase of real estate credit within the framework of a regrouping of credits
Consolidation of loans consists of repaying various loans, including real estate loans, to pay only one monthly payment, usually less than the sum of all maturities. This type of operation is intended to generate more cash or to finance a new project.
Again, care must be taken to calculate that the gain obtained by the repurchase of credit covers the prepayment penalties of the mortgage.