What is a mortgage loan repurchase? It is quite simply the fact of soliciting a third-party lender organization so that it buys back the real estate loan contracted with your initial banking establishment. The objective of this operation is to reduce the monthly repayment deadlines thanks to an advantageous borrowing rate.
How does a credit buyback work? Are there any conditions or limits to this procedure? Can all borrowers access this solution? What are the costs of buying back a mortgage? To fully understand the commitments related to this operation and the benefits to be gained, it is better to be informed!
In which cases should you buy back a mortgage?
The repurchase of mortgage comes in two distinct cases. It is in particular a solution for people in a situation of financial fragility or even over-indebtedness. By activating the lever for the repurchase of a mortgage, individuals can find room for maneuver to meet their daily expenses or unforeseen bills. By picking up a lower mortgage repurchase rate, they manage to reduce the budgetary tension that is holding them.
In reality, the repurchase of mortgage can be interesting for any borrower. This is particularly the case when interest rates are low. The objective is then to buy back your mortgage in order to lower your overall cost. Anyone can therefore benefit from this operation provided they comply with certain recommendations.
When should you buy your mortgage?
The repurchase of mortgage does not systematically make savings, hence the interest to know and apply certain recommendations. Among these, the borrower should be concerned with:
- the remaining term of the current mortgage: it must be greater than the elapsed term. Why ? Because at the start the borrower mainly reimburses the interest to the lending organization. The life of the mortgage must therefore be high;
- the amount of capital remaining due: it must be at least $ 50,000 to $ 70,000;
- the difference between the initial borrowing rate and the discounted borrowing rate: it must be at least between 0.7 and 1 point;
- the duration of the operation: it must be anticipated because the procedure for buying back credit can be long depending on the file presented.
What are the costs of buying a mortgage?
Redeeming your mortgage requires taking into account the costs inherent in the operation. It is these costs that are likely to make the repurchase of mortgage in the end not very advantageous.
So what is the cost of a mortgage loan buyout? The elements that go into the equation are:
- the early repayment indemnities (IRA) invoiced by the lending organization that the borrower chooses to leave. Their cost represents the sum of 6 months of interest but cannot cross the threshold of 3% of the capital remaining due;
- the administrative costs claimed by the new host lender;
- the borrower insurance required by the new establishment which guarantees the loan in the event of repayment problems (death, disability, loss of employment). It can take the form:
- a mortgage or lien of lenders of money (PPD) generating release costs;
- a bond involving the payment of a surety commission (lump sum) and a contribution paid to the Mutual Fund (such as Lite Lender).
What is the difference between renegotiating and buying your mortgage?
Renegotiation involves talking to your lender to lower the previously established borrowing rate. The takeover brings competition by calling on other lending organizations to find out their respective offers and then make a comparison.
The bank does not necessarily have an interest in entering into negotiations. However, it may want to keep the borrower and prevent him from going to the competition. But the latter must be attentive to the proposals of his bank which may include the subscription to other banking products such as insurance or even an investment product. It is up to him to question the interest of subscribing to this type of product.
The advantage of renegotiating your mortgage rather than buying it back is that the borrower does not have to pay the costs related to the change of lending organization (application fees, prepayment penalties, costs of a new guarantee) . Between the more attractive mortgage loan rate and the costs associated with the mortgage buyback operation, you have to know how to negotiate or be well represented!
Who are the players in the repurchase of mortgage loans?
To buy a consumer loan, the client can therefore turn to a bank, a specialized financial company (generally a bank subsidiary) or opt for an intermediary: the broker in the repurchase of mortgage loans.
The role of a mortgage loan buyout broker is to find the best offer in the current market based on the profile of the borrower. He studies the feasibility of the real estate loan buy-back request, supports the client in the preparation of his file, before submitting it to the banks and credit organizations for which he has received a mandate.
Credit repurchase and the obligation to domiciliate income
Since 1 January 2018, a lender who approves a mortgage redemption may require the subscriber to income domiciled in the facility for 10 years maximum.
In return, the borrower must be able to enjoy an individual advantage definitively acquired when the ten-year period ends. This is essentially a preferential rate or even a reduction in bank charges. The order of June 1, 2017 relating to home loan offers conditional on the domiciliation of the borrower’s wages or similar income on a payment account does not, however, indicate the nature or the importance of the individualized advantage.
The positive impact of this measure for the borrower is to quantify precisely what he gains or what he loses according to the absence or presence of the individualized advantage. The negative impact is that this period traps the borrower and the lender who could buy the mortgage. The first risks losing its advantage, while the second must align with it to capture the client.
With this measure, the borrower does not have an interest in starting the procedure only two years after having taken out his mortgage, the period being too fair to amortize the costs or take full advantage of the advantage.
Home loan repurchase: what is a amortization schedule?
A amortization schedule for a fixed rate home loan buyout is also called a repayment plan or schedule. Its purpose is to inform the borrower in detail about his repayment throughout the duration of the loan taken out.
The amortization table allows you to find out the capital remaining due, that is to say the amount of capital to be repaid. This data is essential to know whether it makes sense to buy a mortgage or not. The document also makes it possible to find out the share of capital repaid on each monthly payment and notifies the overall cost of financing, including interest and insurance costs.
I want to keep the same duration for my mortgage
To make the right decision, three scenarios exist:
- the current mortgage is in its first third of repayment: you must get an interest rate for your new mortgage at least 1 point lower than the current one;
- the current mortgage is in its second third of repayment: you must get an interest rate for your new mortgage at least 2 points lower than the current one;
- the current home loan is in its third third of repayment: as a repayable loan, the repurchase of home loan is not advised because it brings back too little given the expenses generated elsewhere.
I wish to shorten the duration of my mortgage
This opportunity is necessarily interesting but requires having additional income compared to your initial situation. If your income has increased, you can pretend to shorten the duration of the mortgage thanks to the redemption, while reducing the cost of credit and reducing your debt level.
What is the point of buying a home loan included in a loan group?
Credit consolidation is different from credit renegotiation. The first is used to buy back several credits in progress in order to subscribe to only one. The second is to renegotiate your credit on more favorable terms. Within a group of loans can be merged a mortgage, consumer loans and even bank overdrafts.
When buying a home loan via a group of loans, you must be careful that the debt ratio remains acceptable after the transaction (threshold of 33%). As such, the borrower should not hesitate to make a credit buyback simulation including a mortgage to know the feasibility of this operation.
The objective is always the same: to make savings compared to all the credits initially contracted to finance a new project, to generate cash, to have more visibility on its finances or even to rebalance a budgetary situation that is weak or likely to slide into over-indebtedness .