What is the difference between a renegotiation and the repurchase of his credit?
To benefit from more attractive rates, two solutions exist: the renegotiation or the repurchase of credit. For a borrower, what are the differences between these two practices? What is the most advantageous option? With borrowing rates, historically at their lowest level, opportunities are to be seized.
What is renegotiation of mortgage loans?
The renegotiation consists of a negotiation exercise with his banker, in order to obtain more favorable terms than those negotiated at the time of the subscription of the first loan. We seek to modify the contract by an amendment. After examining the file, the bank chooses to proceed, or not, to a modification of the conditions (rate, duration, monthly payment, schedule). The operation becomes financially advantageous from a differential of at least 0.5% between the proposed rate and the initial rate. This is translated – more concretely – by a decrease in monthly payments or by a reduction in the loan repayment period. Before choosing this solution, the total cost of credit – before and after negotiation – must be evaluated. Indeed, during a renegotiation, fees are to be taken into account. Renegotiation is from the outset the most obvious solution: it avoids administrative formalities, such as the change of banking domiciliation in particular. Note that it only concerns real estate loans, not consumer loans. In case of refusal of the bank, we can play the competition: it is called the repurchase of mortgage.
What is the redemption of credit?
Here, we create a new contract. The new mortgage, subscribed with better terms and at a lower rate, fully reimburses the remaining capital of the original home loan. The objectives are the same as in a renegotiation: to obtain lower monthly payments or shorten the repayment period, or both. The repurchase of mortgage implies to budget the expenses of files applied by the new lending institution, and the indemnities of prepayment of the initial loan.
The repurchase of credit can also intervene for consumer credits. This is called credit consolidation. Here, we will try to multiply the various loans. The goal is to obtain a single loan and a single monthly payment on more favorable terms. The monthly payment is reduced, at a fixed rate, and the duration of the credit is extended.
The 3 steps of a loan renegotiation
Before embarking on a renegotiation operation, it is essential to respect different stages:
- Step 1: estimate the remaining cost of the loan and quantify the amount to be renegotiated. The sum of the remaining interest payable until the last monthly payment corresponds to the cost of the credit. To assess the amount of outstanding capital, simply consult the depreciation table in relation to the date of the last monthly payment. The amount will serve as a reference for the new loan to be negotiated.
- Step 2: ask the bank for an estimate. Before any renegotiation, it is useful to obtain a simulation for a loan similar to the amount to be borrowed. If the bank’s proposal is more interesting, the loan must be renegotiated in order to obtain the same conditions as the simulation obtained.
- Step 3: Arm yourself with solid argumentation. Renegotiation is not a right. It is therefore essential to work on his argument. The borrower must offer the guarantee of being a good payer, having his income domiciled in the bank, having product investments and / or insurance. And to put all the chances on his side, it is not useless to bring some competing offers.
The 4 steps of a credit redemption
A credit redemption by another bank – a credit that can not be transferred – involves changing banks. How to proceed ?
- Step 1: Prepare the buyout by searching and analyzing all available information: on your financial situation thanks to your financial advisor and the various players in the credit redemption by identifying them.
- Step 2: Compare the offers. After this tedious preparatory analysis work, and after consulting the chosen organizations, we compare all the offers available on the market on objective criteria: duration, type of rate, APR, insurance, … and we opt for the one that presents the simulation the most advantageous.
- Step 3: acceptance and conclusion of the new credit. After having accepted the most advantageous offer with the new lending institution, it remains to finalize the file to launch the release of the funds needed to repay the loans.
Step 4: Follow the process. In parallel with step 3, it is strongly recommended to follow the different steps with great attention.