What you need to know about remortgage in France

The operation consists of buying back your current mortgage by a bank with early termination fees (ERC) and other fees. During last 14 months, yields of home loans have known an important decline. They went from the average of 5.15% during November 2008 to 3.45% in April 2010 (source: Observatoire credit lodgement/CSA).

The decline known between January and December 2009 has the same impact as a price decrease of 10%. So this fall makes new buyers more than happy but it is not the case for those who made a mortgage at higher rates.

Calculate the cost of this operation

The operation can be possible by repurchasing your current mortgage by another bank but most of the time, it is costly. First, you need to pay early repayment charges (ERC). It is approximately 1.5% to 3% of the remaining amount and capped to six months of interests. Some years ago, borrowers were able to negotiate with their bankers regarding these ERC (but it has been  clearly more difficult during the last two years). To these, you need to add the guaranty fees. If you have a first mortgage, it will be 0.7% of withdrawal fees, and 2% for the settling of a new guaranty. Finally, there are the contract fees that can be up to €1,000. The total cost can be up to 5% of the amount to borrow. However, this could be a profitable operation but it should fill two of the three followings required conditions: the remaining capital borrowed should exceed €50,000, the length of remaining duration should be more than 10 years and the borrowing rate should have  1 point differential with the current mortgage.

Complete the remortgage during the first years of the loan

Indeed, the first years of a mortgage consist mostly  in interest payments. As time goes by, the operation will be less and less beneficial.

Reduce the length of repayment

The remortgage is also a good opportunity to reduce the repayment length either by increasing the amount of the monthly payments or by completing a supplementary paid-up capital. Thus, with a loan of €150,000 made in April 2008 with a 5.05% yield on 20 years, the saving linked to the remortgage at the current market conditions (3.48%), rises to €27,946 if the borrower keeps the same length.
Lastly, do not hesitate to ask to a professional such as Sextant Mortgages in order to get simulations and see if the operation will seriously be advantageous.

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Tags: borrowing rates, French bank, French Mortgages, lower rates

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