Imagine that since you bought your home and subscribed to a mortgage loan to finance this purchase, mortgage rates have dropped significantly. Perhaps it would be interesting to renegotiate or refinance this loan to benefit from a better mortgage rate?
The questions to ask to effectively renegotiate your mortgage
The basic assumption that refinancing a mortgage is worthwhile is that the mortgage repayment term is still at least 10 years. It is also necessary that the difference in annual rate is at least 1% between your current rate and the one you are targeting. In this context, compare many apples with apples. If you chose at the time for a fixed mortgage rate, compare it with a current fixed mortgage rate.
You are thinking of trading your fixed rate for a variable rate, because these are a little lower. Think carefully about the opportunity for such a change. Opting for a variable interest rate formula when interest rates are at a low level means taking the risk of having its monthly payment go up as soon as benchmark interest rates rise again.
Negotiate with your banker
Before you even run all the bank signs to find the lowest mortgage rate on the market, make an appointment with the bank that hosts your mortgage currently.
It may make a commercial gesture and lower the rate of your credit for the payment of fees, and a re-employment allowance. The reinstatement allowance requested may not exceed three months of interest on the principal that you still have to repay.
To calculate the severance pay, refer to your amortization schedule. This table shows, month after month, the amount of principal and interest you are repaying, as well as the capital balance you still have to pay.
If, for example, you pay off your mortgage for 5 years, refer to the 60th monthly payment to determine the balance that you still pay. Then apply the formula: mortgage balance x mortgage interest rate x 3/12 to determine your maximum RRSP.
Check if the game is financially worth it
Nothing works, your credit organization does not want to make a move in your favor. You will have to refinance your mortgage loan with another organization. The first thing to do is to check if the operation is financially interesting. Do not focus on mortgage rates to judge the interest of refinancing your loan. The refinancing costs of a mortgage loan are far from negligible. Compare the total cost of your current loan, with the total cost of your new loan to judge the interest of refinancing. And, check the cost of adjusting your outstanding balance insurance .
In terms of costs in refinancing a mortgage, you must consider:
- Redemption allowance (ie 3 months of interest on the principal remaining to be repaid);
- Hand-raised fee (fees related to the deletion of the existing mortgage);
- Mortgage fees (to register a new mortgage on your home you will have to pay notary fees, legal fees, mortgage registration fees and registration fees);
- Administrative fees (between 0 and 650 euros);
- The cost of adjusting your outstanding balance insurance.
In 2008, you bought a house worth 250,000 euros. You have totally financed this purchase through a fixed rate mortgage of 5.50% over 20 years. Five years later, you want to refinance this loan because the rates have dropped to 3.50%.