What is a mortgage loan buyout?
When rates are at their lowest, as has been the case since 2013, many first-time buyers rush to their bank to renegotiate their loan. If their bank does not wish to grant them a sufficiently attractive rate, they of course have the possibility of turning to the competition and of “buying back” their mortgage.
However, when you have taken out a mortgage, it is not always easy to leave your bank. In fact, the new lender will have to buy back your credit, which will give rise to the payment of costs (application fees, penalties, guarantees, etc.). When you change establishment, you must settle your initial loan, and therefore pay the IRA or early repayment indemnities, the equivalent of six months of interest on the repaid amount, capped at 3% of the principal remaining due.
There must also be administrative fees and mortgage fees. It is then necessary to ensure that the project is profitable for you, the profits made must be sufficient to cover the costs incurred. Take the time to study the proposals.
However, lending organizations are sometimes not very accommodating, especially when borrowers are in a difficult situation in terms of repayment of maturities or when their debt ratio is too high and no longer allows them to carry out a new project.
Fortunately, the latter then have the possibility of carrying out a more global grouping with the objective, not of reducing the total cost of the credit, but of reducing their monthly debt ratio.
Also called restructuring, consolidation or “consolidation of credits”, the repurchase of mortgage, or “RAC” for professionals, is presented as the solution to a situation close to over-indebtedness. This involves replacing one or more existing loans with a single loan, repayable over a longer period and with a lower monthly payment.
And what about the difference between buying credit and consolidating credit?
Before answering this question, it is necessary to distinguish between a renegotiation and a buyout of mortgage.
From the point of view of individuals
Concretely, renegotiating your home loan amounts to turning to your bank and asking it to revise the rate applied when signing the contract. This solution is particularly appreciated since it avoids the tedious steps associated with a change of establishment.
In addition, it is economical. Contrary to popular belief, renegotiation does not result in the payment of IRAs or warranty fees. You will only pay the administrative fees. And again, these are easily negotiable with the bank.
From the point of view of financial organizations
However, if renegotiation is financially attractive for individuals, it is not necessarily attractive for lending institutions. Since by agreeing to renegotiate your loan, they must make a sacrifice and resolve to cut corners. This is why they sometimes turn a deaf ear, especially when the client does not have a “good” profile. On the other hand, for so-called “premium” borrowers, with investments, savings, insurance and all of their accounts in the establishment, the bank will be able to make a commercial gesture.
In the event of the lender’s refusal, the “average” profiles have no choice but to move towards a buyout of mortgage. Either they can redeem their home loan by another establishment, or, if they aim to drastically reduce the amount of their monthly repayment, they will then carry out a grouping of credits. As we have just seen, this consists in setting up, for a client in situation of excessive debt, a single loan which brings together one or more loans as well as other debts, the monthly payment of which is reduced and compatible with his income.
To come back to the question posed above, there is no difference between redemption and consolidation of credit since these expressions are used to designate the same transaction.
How to get the best conditions?
When your credit is secured by a mortgage or lender’s lien (PPD), you have to pay the release fees, which correspond to 0.5% or 1% of the loan amount. However, it sometimes happens that the new lender is satisfied with a 2 nd guarantee, which avoids the costs of show of hands. Stay alert to this point.
Benefit from optimal conditions for your repurchase of mortgage
The best solution is to go through a broker, who has a strong knowledge of the entire banking offer and who is best placed to find the best offer.
Without forgetting that this professional will negotiate the conditions of the new contract for you. Negotiation is his job. He knows all the tricks to highlight the strengths of your file, even if you are considered an “average” profile by the banks.
It will put in competition many establishments in order to find the credit best suited to your personal situation as well as to your expectations. He will offer you simulation tools to allow you to better understand your needs and assess the profitability of your project.