This summer, Good Finance agencies were able to get rates as low as 2.35% over 15 years. At this rate, renegotiating your home loan can greatly reduce your future monthly payments. As an example, here is the interest savings realized on loans taken out during the last decade.
Renegotiating your mortgage, what savings?
The savings generated by a mortgage renegotiation depend on the date the loan was taken out, and the spread. The examples below have been calculated based on a borrowed amount of $ 200,000. Good Finance assumed that the borrower had obtained an average rate, and that he would obtain average conditions today. The calculation takes into account the renegotiation costs (around 4.5%), and shows that even the renegotiation of a recently signed loan leads to savings.
In January 2003, the rates were 4.9% on average, if the borrower renegotiated at today’s rate, he would save around $ 8,400 in interest.
For the contracts signed in January 2007, the savings would be almost identical: $ 8,340.
The renegotiation is starting to become attractive on all the contracts signed by January 2008. At that time, the rates were very high: 5% average. A renegotiation of the contracts signed in January 2008 could today allow savings of around $ 25,220.
But the pinnacle of the calculation was reached in January 2009, when rates climbed to 5.3%. A mortgage now renegotiated could save $ 34,140.
If the contract had been signed towards the end of the 1st quarter of 2009, the economy would amount to $ 20,380.
A loan of $ 200,000 taken out in July 2011 and renegotiated under today’s conditions would allow borrowers to save interest in the order of $ 15,150.
Even recent contracts can save money. In January 2012, average property rates were 4.3%. By renegotiating today’s conditions, we would obtain a saving of $ 24,340 over time.
Why renegotiate a recent loan?
The above calculations show that it is more advantageous to renegotiate a recently taken out mortgage, even after taking into account the prepayment penalties. Because during a loan over 20 years, the first years the borrower reimburses up to 50% interest per month, or even 60% over 25 years.
When a loan is more than 5 years old, the share of capital becomes greater within the monthly payments. We realize that it is during the first 5 years that we will pay the most interest, but the principle of negotiation is precisely to pay less interest.
Is renegotiating your home loan still viable?
Sandrine Allonier, head of bank relations at Good Finance, explains that there must be “ a minimum point of difference between the rate of the credit to be renegotiated and the current rates so that the economy generated makes the operation interesting given the costs incurred which may reach up to 4.5% of the capital remaining due ”.
However, a smaller difference, for example of the order of 0.7 point, may be sufficient for recent loans. Particularly if the amount to be reimbursed is more than $ 300,000, or if the remaining term is more than 20 years. For Sandrine Allonier, it is necessary “to study the relevance of the operation so as not to miss an opportunity”.
Real estate rates as low as 2.35%
Mortgage rates broke a new record low this summer, but brokers did even better. Robin Lee, president and founder of Good Finance, specifies that good borrower profiles have been able to obtain as low as 2.35% over 15 years, 2.45% over 20 years, and 2.75% over 25 years. Remember that these are nominal rates, not including fees.
Given the gap between current rates and those of a few years ago, the borrower is likely to save a lot on the interest on his mortgage if he renegotiates downward. The calculation even shows that it is better to use savings for a repurchase of credit, the gain in term being more important.
3 tips to renegotiate your home loan
Keep the same repayment tenure
Many individuals requesting a renegotiation of rates directly from their bank, are given exaggerated offers. The banker offers them a sharp reduction in monthly payments, at the cost of an extension of the duration of repayments. In this way, the bank amortizes its losses by charging more interest to its client.
For a mortgage buyout to lead to better interest savings, it is preferable to keep the remaining repayment period. For example, the renegotiation of a home loan contract with a duration of 20 years after 5 years of repayment, must not lead to more than 15 years of monthly payments.
Take into account the costs of a credit repurchase
There are costs involved in renegotiating a mortgage, up to 4.5% of the amount at stake. For example, if $ 150,000 remains to be repaid, the costs may be $ 6,750. These costs include the prepayment penalties, the subscription of a new guarantee (deposit or mortgage), the administration fees, as well as the release costs if the credit to be renegotiated is covered by a mortgage.
Remember that the early repayment indemnities for a home loan are capped by decree. They amount to 3% of the capital remaining due, without exceeding the sum of the next 6 months of interest. As we can see, the compensation will therefore be higher at the start of the loan, so it is a matter of playing with the calculator to determine the viability of the operation.
Depending on the borrower’s profile, the fees can be added to the debt, while allowing real savings on the monthly payments. The calculation can demonstrate that it is better to use savings to pay the renegotiation fees.
Make the competition play
The low level of mortgage rates gives good ideas to banks. They are ready to go the extra mile to attract competition customers to its agencies. The brokers in repurchase of credit of Good Finance thus propose the file of their customers to competing banks. The latter know that they do not run the risk of seeing them in turn leave for other competitors in a few years, because the rates are so low that a future buyout of credit will not be attractive.
One can therefore obtain better conditions in exchange for the domiciliation of his current account in a competing bank.