Interest rates are back to their 2016 lows. This should encourage some borrowers to visit their banker to consider renegotiating their mortgage. If they do, they could benefit from substantial discounts on the cost of their mortgages. All they have to do now is prepare for this meeting and seize this great opportunity.
Many media outlets are reporting on the fall in interest rates. This is a good reason to consider renegotiating your mortgage. With rates flirting with 1% for the best applications, this suggests that you need to charm your banker a little to take advantage of these extremely attractive values. All the more so since you'll also need to discuss the terms of your loan insurance. It's a meeting that promises to pay off!
Get a gift rate!
Since 2014, interest rates have been falling steadily, despite a slight rise that appeared in mid-2015, but which was very quickly contained to encourage investment and growth. This means we can now borrow at half the cost of 4 years ago. Over 20 years, loans are trading at around 1.60%, compared with 3.30% at the start of 2014.
This seems to be a very advantageous situation for current borrowers, but it doesn't leave those who signed up a few years ago out in the cold. They can renegotiate their mortgage as soon as the rate differential reaches at least 1%.
Let's compare the monthly payments for a €150,000 20-year loan (including insurance):
- at a rate of 3% = €876
- at a rate of 1.6% = €776
A saving of €100 that can be used to save, spend or take out another loan.
Reduce the loan term
Credit renegotiation can pay off handsomely if you choose to reduce the loan term rather than the monthly payment. By reducing the number of years of repayment, you benefit from lower interest rates. The gain can be as much as 30% compared with a lower monthly payment.
Let's take an example of renegotiation for a €200,000 loan:
- May 2016: 20-year monthly payment of €1,126 for a total cost of borrowing including insurance of €70,147,
- renegotiation in May 2018: 17-year monthly payment of €1,134 for a total cost of the new loan of €43,235.
This represents savings of over €16,100 and a repayment period reduced by 3 years. However, half of those who renegotiate prefer to lower their monthly payment to give themselves some breathing space.
Banks recommend renegotiating a loan during the first third of its lifetime. At the beginning of the loan repayment period, interest represents an important part of the total, since each monthly payment contains both the principal still to be repaid and the interest. Banks limit risk by increasing the proportion of bank interest at the start of repayments. What's more, for this renegotiation to pay off, the outstanding capital should ideally be at least €70,000.
IT'S A WIN ON DURATION OR MONTHLY PAYMENTS
Renegotiating your mortgage allows you to shorten your repayment period or reduce your monthly payments!
Reduce costs!
Renegotiating a mortgage entails costs such as administration fees. Even with your own bank, which will try to make up for the losses incurred by the lower interest rate. You should therefore compare proposals with another organization, or ask a broker for a financial study. They can represent 2% of the outstanding capital!
Don't forget loan insurance
Since the Bourquin law of 2017, all borrowers can cancel their loan insurance on the anniversary date of the contract. In concrete terms, as long as the guarantees offered by the new insurer are equivalent to those of the bank that granted the loan, the latter cannot object to a breach of contract.
According to a study by the capital.fr website, the savings can be considerable:
- up to €6,700 over 20 years for a 30-year-old borrower,
- 8,000 for a 40-year-old borrower.
Young borrowers should seize this opportunity. Over the age of 45, health risks weigh more heavily and the cost of insurance increases proportionately. As a result, the benefits to the policyholder are reduced.
Christophe Raffaillac