Interest rates are declining. Is now the right moment to renegotiate your home loan?
Published on 09/28/2024 07:37
Reading time: 2 mins
After two years of rising borrowing costs for real estate, interest rates have sustainably decreased over the past year to about 3.55% for a 20-year loan. Is now a good time to lower your loan terms? Here are some insights from Fanny Guinochet.
franceinfo: Should you contact your banker or broker now to try to review your rate and save money?
Fanny Guinochet: It’s certainly enticing, as loans over 20 years are currently averaging 3.55%, compared to around 4.3% at the end of 2023.
Generally, we believe that renegotiating your mortgage is worthwhile only if there is a difference of 0.7 to 1 percentage point between current rates and your previous rate. If the difference is smaller, the costs associated with credit redemption, file fees, early repayment penalties (IRA), and guarantee costs for the new loan can make it less appealing.
Additionally, it’s better to consider this option during the first half of your loan repayment period, as this is when you pay the most interest compared to the principal repayment. For loans taken out in 2023 or early 2024, this could be an opportunity.
Can everyone renegotiate?
It really depends on the conditions of your loan. There are two main options: you can either stay with the same bank or have your loan acquired by another institution.
Currently, banks are eager to attract customers and are relatively flexible, but this largely depends on your profile: banks typically accept renegotiations or loan acquisitions only from borrowers who can provide solid guarantees. Thus, it’s important to present your strongest profile.
What steps should you take?
First, it’s advisable to request a commercial gesture from the bank that granted your initial loan, especially concerning application fees which are usually negotiable. To persuade the banker, you will need compelling arguments, such as the prospect of bringing your savings back to their bank.
Often, acquiring a new loan can yield better terms than simple renegotiation. However, this process can also be more costly due to processing fees and early repayment penalties. Additionally, you may incur mortgage costs associated with the financed property.
Therefore, before moving forward, it’s important to carefully evaluate all potential costs and consider whether it might be wiser to wait a bit longer. Professionals are predicting rates of around 3% for the upcoming year.
Interest Rates Are Falling: Time to Renegotiate Your Home Loan?
Published on 09/28/2024 07:37
Reading time: 2 mins
After two years of increases for borrowing and buying real estate, interest rates have fallen sustainably over the past year, to around 3.55% for a 20-year loan. Is it a good time to lower your loan terms? Advice from Fanny Guinochet.
Should You Renegotiate Your Loan Now?
Fanny Guinochet: It’s tempting, with loans over 20 years at an average of 3.55%, while at the end of 2023, we were more around 4.3%. Essentially, we consider that renegotiating your credit is only worth it if you have a gap of 0.7 to 1 point between the current rates and the one you previously obtained for your loan.
Keep in mind that there are costs involved, such as credit redemption fees, early repayment compensation (IRA), and guarantee costs for the new loan. Therefore, it may not always be beneficial to renegotiate.
When Is Renegotiation Worth It?
Furthermore, it’s advisable to be within the first half of the loan repayment: it’s during this phase that you pay the most interest, making any potential savings through renegotiation more significant. For loans taken out in 2023 or early 2024, this scenario often applies.
Can Everyone Renegotiate? Understanding the Options
The ability to renegotiate depends on the conditions of your loan. There are two main paths:
- Stay with your current bank and negotiate a better rate.
- Have your loan purchased by another financial institution.
Currently, banks are eager to attract customers and tend to be more flexible; however, the approval of your renegotiation heavily relies on your financial profile. Banks typically prefer borrowers with solid financial guarantees.
How to Prepare for Renegotiation
Start by requesting a commercial gesture from the bank that initially provided your loan, particularly concerning application fees, which are often negotiable.
When presenting your case to the banker, it’s essential to come prepared with valid arguments. For instance, you could promise to bring your savings or investments to their institution as a means to encourage favorable terms.
Cost Considerations for Renegotiation
The operation of credit purchase often yields better rates than simple renegotiation; however, it’s generally more costly. Factors to consider include:
- Processing fees
- Early redemption compensation
- Potential mortgage costs on the property financed through the loan
Before proceeding, evaluate all associated costs carefully. It might be worth waiting—experts believe rates could fall to around 3% next year.
Benefits of Renegotiating Your Home Loan
- Lower Monthly Payments: Reducing your interest rate can significantly decrease your monthly mortgage payments.
- Shorter Loan Terms: By renegotiating to a lower interest rate, you might also opt for a shorter loan term, which can save you money in interest over time.
- Better Cash Flow: With lower payments, you may have more disposable income to invest or use for other purposes.
- Increased Financial Security: Lower payments can lead to less financial stress, providing more stability for your overall budget.
Case Study: A Real-World Example
Consider John and Sarah, who took out a 30-year mortgage two years ago at a 4.25% interest rate. With the recent decline to 3.55%, they researched their options. After calculating the costs of early repayment fees and other associated costs, they found that switching to a new bank would save them an estimated $800 annually. By renegotiating, not only did they lower their payments, but they also shortened their mortgage term from 30 to 25 years, allowing them to save a substantial amount in interest. This real-world outcome highlights the potential benefits of diligent planning and negotiation.
Practical Tips for Renegotiating Your Home Loan
- Review Your Current Loan Terms: Gather all necessary documentation regarding your current mortgage, including interest rates and remaining balance.
- Shop Around: Contact multiple lenders to compare current rates and terms before negotiating.
- Assess Your Financial Health: Ensure your credit score and financial situation are appealing to potential lenders.
- Understand Fees and Costs: Become familiar with all fees associated with renegotiation to avoid unexpected expenses.
- Negotiate: Be prepared to articulate why a more favorable rate makes sense based on market conditions and your financial status.
Conclusion
With interest rates currently trending downwards, now may be the time to consider renegotiating your home loan. However, it’s essential to weigh the potential savings against the costs and ensure you approach the process strategically. With careful planning and thorough research, you can make the most informed decision regarding your mortgage.
