Lower rates can benefit borrowers whose credit is already in place. How? By renegotiating or repurchasing their outstanding loans.
Attractive rates: an opportunity to save money
More than ever, low rates are topical. While the fall in rates is not surprising since this decline has been started since 2012. But the rate cut accelerated in 2016, a year qualified by the market experts as historic. Yet in terms of real estate financing, the first quarter of 2019 continues to focus on low rates. For some observers and especially for some borrower profiles, it is possible to obtain more interesting rates than in 2016.
Typically, a mortgage buyout becomes attractive from a financial point of view if the difference between the old and the new rate is greater than 0.7%. This is recommended if the loan is relatively young. In fact, it is during the first years of a loan that the borrowers repay the most interest. This share decreases over time to make room for the repayment of capital. It is, therefore, more interesting to renegotiate or buy back a mortgage when it is in the first third of its duration.
Beyond that, it will be necessary to make sure that the difference is at least 1%. Why is it necessary to respect these conditions? These are not mandatory conditions but recommendations for a good buyback credit. In fact, during a repurchase transaction, the current loan (s) are repaid in advance.
Pay attention to prepayment penalties
This total repayment earlier than contractually stipulated gives rise to prepayment penalties (PRA), the amount of which can not exceed 3% of the outstanding capital. It is, therefore, necessary to take into account the calculation of these allowances. By drastically reducing the new mortgage rate, it is possible to absorb these costs and make the transaction sustainable.
Current rates are therefore a great opportunity to significantly reduce the total amount of a home loan. Moreover, by changing its loan insurance contract, a borrower can optimize his budget. However, it is not uncommon to have one credit in repayment but to contract several loans (auto, work, conso). It may, therefore, be possible to buy back several loans and consolidate them.
In the case of a consolidation of credits, the objective is not always to make savings but to readjust the amount devoted to its credits. By performing a simulation of redemption credits, it is possible to quickly get an idea of the amount of the new monthly payment.