Did you take out a mortgage a few years ago? or even last year? You hear in the media that the rates are at the lowest but you do not know how much you can save by buying your mortgage? or you just don’t have time to take care of it?
In times of low interest rates, the loan buy-back can have two interests, attached to two distinct objectives.
You can initially reduce the amount of your monthly payments. You will then gain purchasing power.
You can also keep your monthly payment while reducing the duration of the credit. This will significantly decrease the amount of interest attached to your loan.
Different studies indicate that a loan repurchase becomes attractive when you can benefit from a rate cut of at least 0.6% between the interest rate of your current loan and the interest rate of the new loan.
This is a first indication, but it is not sufficient to know if it is in your interest to have your loan redeemed.
Do you want to know everything about loan redemption? The rest of the article is enlightening.
Know the potential gain from a loan buy-back: a simple two-point method
You just need to precisely determine the cost of your current loan, and compare it to the cost of the same loan under the conditions existing on the day of your loan repurchase!
- The cost of your existing credit is simple to determine. You know the amount of your monthly payments and the number of months remaining on your current loan. Multiply the two and you will know exactly what you will pay in the bank until the end of your credit! (attention, sensitive soul refrain ?).
- The cost of the new loan is more complex to calculate
- You have to determine the amount to buy back first. This is the capital remaining due on your current loan on the day of redemption, plus prepayment penalties which will be billed to you by your current bank (3% of the capital remaining due within the limit of 6 months of interest), plus the costs of setting up a new guarantee (1% of the amount borrowed), plus (decidedly) brokerage or administrative fees.
- You then have to determine the amount of the monthly payments for this new loan according to the duration chosen – which generally cannot exceed (or very little) the remaining term of your current credit – and the interest rate that you could obtain on the day. redemption.
- Calculation of the financial gain from a home loan repurchase
GAIN = (monthly payment of the new credit x duration of the new credit) – (monthly payment of your current credit x remaining duration of your current credit)
Generally, it becomes interesting to proceed to the repurchase of your mortgage when the gain is higher than 10 000 $, because it will generally be necessary to change bank to make redeem your loan.
Indeed, your bank will not be the best positioned on your file because to agree to renegotiate is to agree to reduce the remuneration that it had planned by granting you the initial credit. It will then try to limit this loss, while the other banks will do everything to make you their best customer!
To ensure your calculation (rather technical we saw it!), Do not hesitate to send us your questions. We will be delighted to be able to present you the interest of having your home loan redeemed. Click here and we will get back to you within 24 hours (responsiveness is our business!).
Know the financial gain: yes! But not only…
The repurchase of your loan has mainly a financial interest, but it can also have a patrimonial interest which it is advisable not to neglect.
Here is what the loan buy-back can offer you, in addition to a significant financial gain:
- Some banks agree to combine your consumer and work loans (often expensive) with your main mortgage. The duration of your credit will be equivalent to the remaining duration of your main credit, you will then settle lower monthly payments and will make reduce significantly the cost of your loans
- Some others agree to extend the duration of a mortgage by approximately 5 years. Do you have a property and another real estate project but your monthly payments will be too large? You may have the solution ?
- It can be useful to redeem your mortgage for a transferable mortgage if you plan to change your main residence in a few years. Thus, during your future acquisition, the outstanding capital of your renegotiated loan can be transferred to your new property. If you need additional financing, it should be borrowed at market conditions on the day of your new acquisition. But you will benefit from a part of credit at advantageous rates!
- And many other advantages …