Refinancing mortgage loans
Does it make sense to renegotiate your loan terms?
Due to the ongoing economic crisis, interest rates have fallen continuously in recent years and are currently at an unprecedented historical low. This development in market interest rates is causing many people who took out their real estate loan a few years ago to think about whether it makes sense to renegotiate its terms. This raises the question of whether such a step makes sense. This question can only be answered conclusively in individual cases.
If the loan has to be transferred to another bank, the costs incurred by this transaction must be compared with the profit from the lower interest rate.
Early repayment penalty
If the interest rate on the existing loan has been fixed for a certain period of time, the bank will generally request an early repayment penalty, if the loan is released within this so-called fixed interest period.
The bank can make this compensation dependent on many factors, such as the current market situation at the time the loan is canceled. In general, it can be assumed that the amount of the loan also affects the amount of the compensation. With a loan of EUR 100,000, the compensation will certainly be less than with a loan of EUR 200,000.
In most cases, the early repayment penalty will also depend on whether the termination occurs at the beginning or at the end of the fixed interest period. For example, if the interest rate has been fixed at 10 years and the notice is given after one or two years of credit, the compensation will usually be very high. However, if the notice is given towards the end of the fixed interest period, in our example after 8 or 9 years, then the compensation will generally be significantly lower. The law of December 23, 2016 limits this compensation to a maximum of 6 months of interest if the property that was financed with this loan is the borrower's primary residence and if he has lived in the property for at least two years. However, this restriction only applies up to a maximum repayment of 450,000 euros. For the amount over 450,000 euros, the bank can invoice its real loss, regardless of how high it may be.
The surest way to know the amount of the compensation is to ask your current bank directly about the amount of the compensation.
The termination fees, the early repayment penalty and the notary fees for the transfer of the loan must be included in the calculation. These costs must be compared to the profit from the lower interest rate.
We will be glad, to help you analyze your case.