Mortgage rates are starting to rise again after several years of declines. Although this increase is still focused on long-term loans and is quite small, it may be the most opportune time to renegotiate your mortgage rate before it’s too late. Renegotiate your mortgage.
However, it is important to shop around to have several offers to compare. You should not only base your choice on the attractive rate offered by a credit organization, but also take into account the additional fees related to this new credit and the repayment of the old one.
The benefits of renegotiating your loan
Several advantages can be gained from renegotiating the mortgage loan. The first is to seek a more favorable interest rate, taking advantage of the currently low levels of rates. This option allows you to reduce future monthly payments. It is also an opportunity to shorten the loan term if the repayment capacity or the reductions obtained allow it. Beware, obtaining the lowest interest rate does not always mean that you are winning in the transaction.
Indeed, various additional fees are to be expected when you take out a mortgage to repay another one. This includes the prepayment penalty to be paid to the lending bank, which generally equals three months of interest, calculated on the total remaining capital.
You must also bear the costs of releasing the old mortgage, and even the closing fees for some institutions. Furthermore, there are also application and appraisal fees to be expected if you take out a mortgage with another bank, in addition to the costs of the new mortgage deed.
Why renegotiate your mortgage now?
Mortgage interest rates in Belgium remain historically quite low. Despite an increase recorded since July 2013. This increase in rates is slow and mainly affects long-term loans. Therefore, it seems that 2013 is a good year to renegotiate mortgages. Especially short-term loans, for less than 25 to 30 years, to take advantage of this still low rate.
How to renegotiate a mortgage?
The mortgage can be renegotiated, either with the bank that granted the loan, or with other credit organizations. Before any decision, it is more advisable to gather as many offers as possible from the sector’s players.
You can then contact your banker to ask them to lower your rate. This negotiation can be tough, as the bank loses money if it agrees to reduce its rate. On the other hand, it risks losing you as a client if you are not satisfied. According to specialists, a 1% difference between the current rate and the new rate is necessary to come out ahead.
It is rare for banks to agree to such a percentage reduction. The best compromise would be, in this case, for the bank to offer the subscription of a new loan without having to lift the old mortgage. Or the repayment of the old loan without requiring the payment of a prepayment penalty.
You can also look at the offers from competing banks and other credit organizations. However, be careful, as these institutions may present lower rates but require, in return, the subscription of other products. This mainly includes fire insurance, outstanding balance insurance, salary domiciliation, or various financial products.
You must, therefore, calculate what you will gain with the new bank. And the inherent costs of redeeming your mortgage to know which solution is the most advantageous.
