What is the difference between a renegotiation and the repurchase of your credit? To take advantage of more attractive rates, two solutions exist 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 levels, there are opportunities. Manual.
What is mortgage renegotiation?
The renegotiation consists of a negotiation exercise with its banker, with the aim of obtaining more advantageous conditions than those negotiated at the time of taking out the first loan. We are seeking to modify the contract by an addendum.
After examining the file, the bank chooses whether or not to modify the conditions (rate, duration, monthly payment, timetable). The operation becomes financially advantageous from a differential of at least 0.5% between the proposed rate and the initial rate.
This translates – more concretely – into a reduction in monthly payments or a reduction in the duration of repayment of the loan. Before choosing this solution, the total cost of credit – before and after negotiation – must be assessed. Indeed, during a renegotiation, handling fees are to be taken into account.
Renegotiation is immediately the most obvious solution: it avoids many administrative formalities, such as the change of direct debit in particular. Note that it only concerns real estate loans, not consumer loans. In the event of the bank’s refusal, we can bring competition into play: we then speak of buying back mortgages.
What is credit repurchase?
Here, we create a new contract. The new mortgage, taken out with better conditions and at a more advantageous rate, fully reimburses the remaining capital of the initial mortgage. The objectives are the same as in the context of a renegotiation: obtain lower monthly payments or shorten the repayment tenure or both.
The repurchase of real estate credit implies to budget the expenses of files applied by the new lending establishment, and the indemnities of early repayment of the initial loan.
Credit redemption can also take place for consumer loans. This is called credit consolidation. Here, we will seek 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 lengthened.
The 3 stages of a loan renegotiation
Before embarking on a renegotiation operation, it is essential to respect different stages:
- 1st step: estimate the remaining cost of the loan and calculate the amount to be renegotiated. The addition of the remaining interest to be paid until the last monthly payment corresponds to the cost of the credit. To assess the amount of capital remaining due, simply consult the amortization table against the date of the last monthly payment. The amount will serve as a reference for the new loan to be negotiated.
- 2nd step: request an estimate from the bank. 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 attractive, the loan must be renegotiated in order to obtain the same conditions as the simulation obtained.
- 3rd step: arm yourself with solid arguments. Renegotiation is not a right. It is therefore essential to work on your arguments. The borrower must offer the guarantee of being a good payer, of having his income domiciled in the bank, of having product placements and/or insurance. And to put the odds on its side, it is not useless to have some competing offers.
The 4 stages of a credit repurchase
A repurchase of credit by another banking establishment – a credit that cannot be transferred – implies changing banks. How to proceed?
- 1st step: prepare for the repurchase by seeking and analyzing all the information available: on your financial situation thanks in particular to your financial advisor and on the various players in the repurchase of credit by identifying them.
- 2nd step: 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, etc. and we choose the one that presents the simulation. the most advantageous.
- 3rd step: acceptance and conclusion of the new credit. After accepting the most advantageous offer from the new lender, all that remains to be done is to finalize the release of the funds required to repay the loans.
4th step: monitor the completion of the process. In addition to step 3, it is strongly recommended that you follow the different steps carefully.