If you're having trouble making your monthly payments, a prescription based on loan renegotiation and term extension is in order. A few well-administered solutions can help restore vitality to your budget!
As well as affecting our health, the health crisis is also affecting the balance of our budget. Despite all the public assistance, the solidarity fund, short-time working measures... the drop in income suffered by some households has a direct impact on their standard of living. In fact, while resources may fall, expenses remain. In particular, the repayment of monthly mortgage payments. Fortunately, there are a number of ways of reducing or postponing them. Let's find out how.
Action 1
Renegotiate your interest rate
There's at least one piece of good news we can be satisfied with! It concerns interest rates, whose curve has been steepening since the summer. The reference indicator, Observatoire Crédit Logement, has good news in store for us, with the average rate at 1.21% in October. This represents a decline of 7 basis points since 1.28% in June. This is an encouraging signal from the banks, which, under the impetus of the ECB (European Central Bank), are encouraging real estate projects. According to Les Echos on November 13, this represents 11.5% of borrowers' files at present, compared with 5.5% in 2019.
Why renegotiate? With rates approaching their all-time low of 1.11% last December, many borrowers can hope to obtain better value than with their current loan. For the operation to be worthwhile, you need to :
- obtain a spread of at least one point with the new rate,
- be in the first half of the loan repayment phase,
- have outstanding capital of at least €70,000.
What's in it for you? For the record, in January 2016 the rate for a 20-year loan was around 2.50%, falling to 1.10% on average today. For example, on a €200,000 loan, this translates into savings of €222 per month.
This renegotiation allows you to adjust the monthly payment or the loan repayment period.
Action 2
Buy your loan
If credit renegotiation with your bank doesn't bear fruit, the answer may lie with another bank. This may lead you to consider buying your credit from this new bank.
Why renegotiate? Also known as "credit consolidation", this operation enables you to combine your various monthly payments into a single loan, with a single monthly payment. To achieve this, the new banking partner balances all the loans with the various creditors and replaces them with a new loan at a more attractive rate, but for a longer term.
What's in it for you? Debt consolidation means a significant reduction in the amount of each monthly payment. Note, however, that this is accompanied by an extension of the repayment period, and consequently an increase in the total cost of credit (capital + interest + borrower's insurance).
Action 3
Change your loan insurance
Although it represents only a small percentage, around 0.36%, creditor insurance represents a large budget over the entire loan repayment period. It covers risks in the event of the borrower's death, incapacity and/or disability.
How do you insure yourself? Loan insurance is an integral part of credit, providing security for the borrower, and banks offer solutions directly linked to the loan. However, since the adoption of the right to cancel all loan insurance contracts on an annual basis, customers are free to choose their insurance, either when they take out the loan, or every year on the contract anniversary date. And under the French Asap law (Accélération et simplification de l'action publique), customers can cancel their loan insurance on the anniversary date of the loan offer, or on any other due date stipulated in the contract.
For a loan of €250,000 over 20 years, the www.quechoisir.org website has drawn up a comparison between bank insurance and an alternative formula. For a 35-year-old borrower, the total amount using the bank would be €18,600, whereas he could hope to find a competitive offer for €3,500, a saving of €15,100!
Action 4
Defer your monthly payments
By deferring all or part of your monthly payments, you can suspend them for a certain period of time.
If capital repayment is suspended for a given period, interest must continue to be paid. Likewise, loan insurance payments must be maintained. The details of how to modulate loan instalments are set out in the loan offer.
The idea is to negotiate a reduction in monthly payments, up to a maximum of 10% to 30% of the original amount. If the current instalments have already been adjusted during the first containment and this is not enough, then you need to reschedule your debt or consolidate your loans.
Action 5
Take advantage of unemployment insurance
Given the economic uncertainties and the risk of job loss, taking out unemployment insurance (also known as loss-of-job guarantee) when taking out a mortgage seems unavoidable. In concrete terms, if the borrower loses his or her job, the insurance takes over repayment of the monthly instalments during the period of inactivity.
How do I subscribe? The guarantee is exclusively reserved for borrowers with a permanent contract of employment. In addition, they must have worked for the company for between 6 and 12 months. It's important to note that borrowers are not immediately compensated when they lose their job. In fact, coverage only applies after two periods have elapsed:
- the waiting period, which lasts from 6 to 12 months from the date the contract is signed;
- the deductible, which covers a second period of 3 to 9 months before the borrower is entitled to compensation.
What's in it for you? Generally speaking, monthly repayments are reimbursed at between 30% and 80% of their original amount.
Christophe Raffaillac