Renegotiating a mortgage or having it redeemed can enable the borrower to make significant savings on the cost of the loan. However, not all borrowers can claim it. Overview of the criteria to be met and the steps to follow to renegotiate your home loan.
First step: choose your moment
First of all, you need to look at the capital remaining due: that is, the amount you have left to repay on the capital borrowed. To renegotiate your credit, your outstanding capital must be greater than 70,000 USD. Below this amount it will be difficult for you to renegotiate your home loan .
You must also be vigilant about the residual term of the loan! To do this, divide the repayment period by three: to renegotiate, you must be in the first third or at the very start of the second third of the remaining term.
Finally in third, the operation consisting in renegotiating its mortgage rate or in having this loan bought by another banking establishment involves costs: it must therefore remain profitable. For this, the real estate rate differential must be sufficient . It is generally accepted that the necessary difference must be at least 0.80% to 1%. Depending on the credits, the operation can however prove to be interesting with a less significant drop in the rate.
Second step: put the banks in competition
Redeeming your mortgage can be quite expensive , because in addition to the application fees, you will have to pay the warranty costs and any prepayment penalties. Also, it is advisable to ask your bank for a proposal for renegotiation and then to solicit other banking organizations to compare home loans, through a credit broker for example.
Financing establishments which have ambitious objectives are sometimes favorable to granting very advantageous conditions to attract new customers. Note that insurance companies also compete with banks in the field of mortgage loan insurance, because they sometimes offer death and disability insurance rates on mortgage loans that are much more competitive .
Third step: define the right strategy
Generally, the borrower is offered two or three solutions for his new mortgage. One is to reduce the monthly payments and keep the repayment tenure. The other to limit the deadlines by keeping the same level of monthly payments. Sometimes an alternative solution that mixes the two previous ones can be considered. Except in particular financial difficulties, it is recommended to opt for a reduction in the duration of the loan. It is undoubtedly the most effective strategy to optimize savings.