Renegotiating your home loan: when do we do it?
You’ve probably heard of borrowers who renegotiate their home loans. This operation can indeed allow you to save money in certain circumstances: so fill up with information before contacting your bank.
Why renegotiate your home loan?
Interest rates have been dropping for several months now, and have never been lower. It is this context which makes the period favorable to the renegotiation of mortgage loans, since certain borrowers can then claim a credit which will cost them less compared to the conditions initially subscribed. If you took out your loan several years ago and you realize that interest rates have dropped significantly since the subscription, there is a good chance that you will be able to make significant savings.
It is generally estimated that the differential rate should be at least one point: renegotiation will therefore be particularly attractive at this time if you took out a mortgage between 2003 and 2012 approximately, the savings can then amount to several thousand dollars.
To get a clear idea of what you will gain from renegotiating your mortgage, you can do a loan renegotiation simulation. You will then enter several pieces of information such as the loan amount, the amount of principal remaining due and the interest rate applied at the time of subscription.
Good to know
For the renegotiation of the loan to be interesting, the capital remaining due must be greater than $ 50,000.
When is the right time to renegotiate a home loan?
Renegotiating your loan can be financially attractive for many borrowers, but it is not systematic and it depends in particular on what they have already repaid. Indeed, conventional fixed rate loans include, at each maturity, part of the subscribed capital, and part of the interest applied. However, the distribution of these two parts varies throughout the duration of the loan.
At the start of the mortgage, interest is the most important part, so it is at this point that it is most interesting to renegotiate your mortgage because thereafter, the amount of principal owed increases more and more, and renegotiation then becomes less advantageous. It is therefore in your best interest to renegotiate your mortgage if the share of interest in your repayments is the largest, that is to say generally during the first third of the loan period.
Good to know
You can consult your payment schedules to find out the share of the capital remaining due and the share of interest in your monthly payments.
Can you renegotiate your loan without changing the bank?
If you want to renegotiate your mortgage, you have two options:
- Renegotiate directly with your bank.
- Compare several offers by renegotiating with several banks: this will then give rise to a repurchase of credit, insofar as the new bank will then have to buy back the mortgage from the current bank.
Neither of these two options is preferable, it depends on whether or not you want to remain a customer of your current bank. Anyway, it is quite possible to renegotiate your mortgage without changing banks, this solution seems the simplest because it saves you a lot of steps.
However, note that no bank is forced to agree to renegotiate interest rates, and some are reluctant because they lose out compared to your original loan. If your bank refuses to lower the mortgage, then you may want to turn to other banks.