Real Estate Loan Renegotiation: Differences with Credit Redemption
Credit buyback, loan renegotiation, real estate loan buyback… These names are almost similar, but there are indeed differences between these operations. The Credit Guide explains them.
The repurchase of mortgage
In this period of extremely low bank rates, the repurchase of mortgage is the “solution” to benefit from current financing conditions, very attractive.
Let’s say you took out a mortgage at a fixed rate of 3.50% in December 2013. Three years later, the average rate went down to… 1.60%. To benefit from these conditions, you can ask another bank to buy back your loan and offer you a lower rate.
Of course, the operation is not carried out without costs. The costs related to the operation are as follows:
- prepayment indemnities (IRA). For the record, these represent the total amount of the 6 months of interest following the request for redemption. IRAs can not, however, exceed 3% of the outstanding capital;
- warranty costs. If your current mortgage is secured by a mortgage, you will have to pay a release fee and arrange for another guarantee to be signed. If your current guarantee is a bond, you get back a large part of the amount deposited to the mutual guarantee fund (75% that you can then use to pay the future guarantee;
- the fees to be paid to the new bank.
In addition, for a redemption real estate credit is really interesting, certain conditions must be respected. Compared to the interest rate first. The credit spread between the old and new loans should be large enough to cover the above fees.
Then the loan should not be too old. It is indeed in the first years of repayment (especially the first third) that you mainly pay interest. If, today, you are in the first third of repayment of your mortgage, the difference in rates must be between 0.8 and 1 point. Understand: If your current rate is 3%, the rate proposed by the other institution must be equal to or less than 2%.
Finally, the capital to be repaid must be large. If the sum is less than 70 000 €, the amount borrowed will be insufficient to build a financing file.
Real estate renegotiation
The principle is identical to that of the repurchase of mortgage. The difference ? The renegotiation is done with your bank. The advantage is that you do not have to pay a redemption fee.
It must be known that it is very difficult to go through his bank, and for good reason… By renegotiating downward its interest rate, the lender loses money.
The repurchase of credit
Called also debt restructuring or refinancing, this operation can consolidate all or a portion of its loans and debts into a single loan: real estate loan, consumer loans (revolving credit, personal loan…), delays in taxes, bank overdrafts…
You pay a single monthly payment, and find a new capacity for savings and investment. Note that there are two types of credit redemption:
– the purchase of consumer loans : only consumer loans are “refinanced”;
– the mortgage loan repurchase: the mortgage loan is included in the operation. This is secured by a mortgage.