In 2009, the average Total Effective Rate (TEG) recorded by the Cream Bank was 5.87%. In the second quarter of 2014, it dropped to 3.84%. Renegotiating your home loan could very well lead to an economy amounting to tens of thousands of USD. Here are 5 tips to prepare and conduct the negotiation without being tricked.
Compare current rates
2 factors make that a household could save a tidy sum on its monthly payments, if it renegotiated the rate of its mortgage.
The first of these factors is time. Because the rate at which we could borrow a few years ago could be much higher than today. It is even a high probability, because mortgage loan rates are at the lowest since the 1940s. If we consult the statistics of the Cream Bank, we can see that in the first quarter of 2009, the TEG of Average fixed rate mortgage recorded was 5.87%. The renegotiation of rates is even more attractive for households that borrowed in the 2nd quarter of 2001, since the average TEG was 6.89%. In the 2nd quarter of 2012, the average TEG still stood at 4.77%. In the second quarter of 2014, the Cream Bank recorded an average TEG of 3.84%.
The second factor that can make a household benefit from a more advantageous rate is its borrower profile. A few years ago, first-time buyers had to settle for less advantageous conditions than second-time buyers. This is no longer the case today, as banks prefer young borrowers. However, a couple having already made at least 25% of their reimbursements without incident, has a good profile and would certainly be welcome with a competing bank.
When comparing rates, it is important to use the TEG, not the nominal rate. Because a loan offer could very well contain a low nominal rate, but heavy administrative fees and an exaggerated borrower insurance premium. This is the reason why a loan offer must clearly show the cost of credit.
Calculate remaining capital
The larger the amount to be borrowed is large relative to income, more refunds will be for a long time. And the longer the duration, the higher the rate. So when the borrowers have already repaid a good part of the capital, if they had to buy back the remaining capital, it would be over a shorter period. They would therefore get a lower nominal rate than the one they currently have.
To find out the amount already reimbursed on a loan, just take your amortization schedule. We identify the monthly payment column, and we go down to the last paid monthly payment. We move on the right, to the column “capital”. The amount indicated represents the capital remaining to be reimbursed. It only remains to carry out a mortgage loan simulation concerning the remaining capital and the remaining duration. The simulator displays the monthly payments that the borrower could obtain at this time, if he renegotiated his rate.
List the services of your bank
The mortgage is certainly an important source of income for a bank, but above all it is a product of appeal. The borrowers will open a current account in said bank, and consume the products offered by the agency. This is how the client finds himself over the years with an accumulation of all kinds of insurance and services, which are not always essential for him.
On the other hand, the contributions he pays to have access to this range of services are essential to the bank. It is therefore a situation which should be based on the principle of give and take: “I pay for all these small services that bring you immediate cash, in exchange you make me a gesture on my loan rate”.
A borrower can also use banking services to renegotiate his mortgage down. His agency offers him home insurance ? Agree to take it, in exchange for a review of the conditions of his credits. Choose a Gold bank card ? Okay, in exchange for a commercial gesture. It can sometimes pay to subscribe more services, in exchange for a real effort on the real estate rate. But beware, it is a matter of winning the renegotiation, and for that you often have to play the calculator.
Negotiate the borrower insurance rate
Since the Lagarde law, a bank has not the right to impose credit insurance in particular. Since the Chatel law, the insured can terminate his contract to take out another, if he respects the notice entered on his contract. The Hamon law even allows people who borrowed after July 26, 2014 to change borrower insurance within 12 months without notice.
At this point it is important to point out that the contributions from borrower insurance are always more expensive with a bank. Because the latter calculates them on the borrowed capital, while a specialized insurer calculates them on the remaining capital. Over time, the difference can range from simple to double.
But banks have tools to defend themselves, starting with the equivalence of guarantees. They often point to the lack of coverage of the new contract by their customers, and thus use their right of veto.
The borrower has, however, a strong argument to renegotiate his loan. First of all, he must do this sufficiently long before the expiration of the notice specified on his credit insurance contract. He can then agree not to go for a cheaper contract, in exchange for an effort on the nominal rate.
Negotiate a waiver of prepayment penalties
The bankers have not fallen from the last rain, they know that their customers will not hesitate to make them infidelities if the renegotiation of their credit has not satisfied them. They therefore set up an effective system: early repayment allowances.
The Consumer Code allows a credit institution to apply penalties when a home loan is repaid in advance. However, this is precisely what will happen if the borrower has his mortgage bought back by a competing bank. These penalties are however capped, they must correspond to the lowest amount between the sum of the next 6 months of interest, and 3% of the principal remaining due.
When he renegotiates his home loan, the banker will no doubt surreptitiously apply prepayment penalties. The borrower has the possibility to negotiate a partial or total levy, because his bank branch may consider that he will have more to lose if he changes banks.