How to renegotiate your mortgage, before interest rates go up again?

It’s no longer a secret that interest rates have been historically low for several years now. Currently, between 1 and 2% depending on the institution (compared to 5% in 2008), they create very advantageous conditions for households wishing to take out a loan from lending institutions - banks in the lead. However, for those who already hold a medium or long term loan, seeing these historically low rates can be the trigger to start renegotiating a mortgage.

Indeed, why continue to pay full monthly instalments when the borrowing conditions at the time are much more advantageous than those of the time when the credit was taken out? In fact, renegotiating credit can actually save thousands of euros. However, this requires a set of rules and principles to be observed.

Renegotiating your mortgage: what are the terms and conditions?

It is important to bear in mind that for a bank to accept a customer's request to renegotiate a credit is not worthwhile. Unless you have a long customer history, it is unlikely that your banker will agree to review the terms of your credit - a move that would lead him or her to forego some of the profits earned on the outstanding credit.

The other solution is, therefore, to opt for the repurchase of your credit by another financial institution. The latter will, therefore, be responsible for rescheduling the loan at the most advantageous market conditions, in order to achieve substantial savings over time. Credit renegotiation and repurchase are therefore the two solutions to try to take advantage of advantageous market conditions. Nevertheless, they are not miracle recipes.

The various costs related to the renegotiation of a mortgage loan

In order to protect themselves and their profits, financial institutions have established a set of fees that apply to anyone who wishes to renegotiate their credit. First of all, there are early repayment penalties, which amount to 3% of the outstanding principal (CRD), capped at six months' interest due. In addition, any bank will charge a handling fee of approximately 1% of the CRD for such an operation.

A guarantee fee will also have to be added in the case of a credit repurchase, which amounts to between 0.5 and 2% of the CRD depending on the type of guarantee chosen. Finally, households that choose to renegotiate their credit through the services of a specialized broker will also have to pay brokerage fees. Thus, a renegotiation of a mortgage loan can be very expensive. This is why such a step must be undertaken under specific conditions.

The basic conditions to be respected when renegotiating a mortgage loan

Because of the costs involved in renegotiating a loan, you have to be able to act at the right time. Such operation must be carried out in particular when there is a sufficiently large amount of capital still to be repaid to the bank. A credit renegotiation must, therefore, be carried out during the first third of the term of the loan and with an outstanding capital of at least €70,000.

Without this, the savings are no longer attractive enough in relation to the costs to be paid by the borrowing household. Similarly, specialists consider that such a step should be taken only if the spread is at least 1 point between the rate of the loan taken out and the market interest rate at the time the renegotiation is envisaged. Below this threshold, the substantial savings generated by renegotiating the mortgage loan may not offset the costs.

Renegotiate your creditor insurance at the same time as your home loan.

This is relatively unknown, but borrower's insurance is one of the most expensive items of expenditure associated with a mortgage loan transaction. Experts estimate that it alone accounts for about one-third of the cost of contracting such credit. Without insurance, no bank will lend to a household in demand.

Thus, taking steps to renegotiate a mortgage loan can go hand in hand with renegotiating borrower's insurance at a more advantageous rate. This is all the easier since the Hamon law of 2014, any borrower can change insurance one year after the subscription of his contract. Thus, by playing the competition and using the various online comparators that exist, it is possible for any borrowing household to make significant savings.

Renegotiating a mortgage: how much can you really save?

To realize the substantial gains that can be made by renegotiating a mortgage, there is nothing better than to take a practical example. Take the case of a household that borrows €200,000 over 20 years in 2015 at a rate of 2.55%. Under these conditions, the household will have to repay a monthly instalment of €1065, for a total cost of credit of €55,526. Assuming that this credit is bought back in 2019 at a rate of 1.3%, the monthly instalment will then fall by €17 per month, i.e. €1048, while the overall cost of the credit will fall to €17 327.

In addition, such operation allows the borrowing household to increase the remaining term of its loan from 16.5 to 15 annuities, i.e. a gain of 18 months. While this table obviously seems ideal from the borrower's point of view, the savings achieved through renegotiation must nevertheless be subtracted from the various fees applied by financial institutions as specified above. In our example, the net gain for the borrower will be €16,640. A non-negligible amount, which may, for example, encourage work to be carried out on the property purchased or finance any other household expenditure.

Competition between banks is a wise tactic

In the end, therefore, if the various conditions that make renegotiation of a mortgage loan advantageous are met, it can be quite beneficial to take such a step. While a bank will inevitably be cautious at first glance, and while the various fees applied can sometimes act as a disincentive, being proactive in renegotiating the terms of its credit can pay off.

With interest rates currently very low, it is interesting to have competition between financial institutions in order to obtain the best possible borrowing conditions. To do this, you should not hesitate to use the various online comparators that exist, which allow you to simulate the potential gains to be made through the renegotiation of a credit.

Requesting the services of a broker, the comfort solution

Finally, some households may choose to go through a real estate broker to renegotiate their credit. The latter uses its knowledge of the various offers on the market to propose the best borrowing conditions to its customers.

In some cases, this service may even be free of charge to the borrower, since the broker receives a commission from the financial institution to which he refers his client. However, it may also apply brokerage fees to its clients, which are on average between €900 and €1500. This should be borne in mind if one decides to use such an intermediary - whose services are nevertheless often very useful.