In response to fluctuating market interest rates, many borrowers are looking to optimize the total cost of their loans. Renegotiating a home loan is an internal and effective solution to reduce monthly payments or shorten the repayment duration. Discover all aspects of loan renegotiation, from feasibility conditions to associated banking fees, to help you make an informed decision regarding your loan contract.
What is loan renegotiation?
Loan renegotiation, also known as restructuring or modification, is a process that involves requesting your bank or current lender to modify the terms of your initial loan contract. The primary aim of this process is to obtain a more favorable interest rate than the one originally negotiated.
Typically, renegotiation allows for a reduction in the total cost of credit by decreasing the remaining monthly payments, or by maintaining the same payment schedule while shortening the repayment duration. It is an internal operation that does not require switching to a different banking institution. It is governed by an amendment to the initial contract, formalizing the new borrowing conditions.
If rate renegotiation proves to be complex or unsuccessful, the borrower has a much simpler and often very profitable alternative: changing the loan insurance. Thanks to existing laws, you can terminate your group insurance contract to choose another one from an external company, and this can be done at any time and without fees for changing the borrower’s insurance. This process, which is less burdensome than loan renegotiation, allows for substantial savings on insurance costs, thereby reducing the total cost of the home loan.
What are the costs of renegotiating a home loan?
While loan renegotiation is an internal operation, it is not exempt from fees. Your bank will indeed charge you administrative fees for the study and preparation of the amendment to the initial loan contract. These banking fees are generally fixed or calculated as a percentage of the remaining capital owed.
The costs incurred by this process primarily include:
- Bank administrative fees: these compensate the work of the lending institution for preparing the new payment schedule. They are most often capped or correspond to 1% of the remaining capital to be repaid.
- Guarantee fees: if the initial guarantee (mortgage or surety) needs to be modified or renewed.
- Early repayment penalties (IRA): be careful, these do not apply in the case of internal renegotiation, but only in the event of a credit buyout by a competing bank.
It is essential to negotiate these fees with your bank advisor to maximize the benefits of the operation.
Why renegotiate instead of opting for a credit buyout?
The choice between loan renegotiation and credit buyout often depends on the balance between simplicity and potential savings.
Choosing internal renegotiation with your current banking institution offers a major advantage: the absence of early repayment penalties (IRA).
Unlike a loan buyout by a competing bank, which imposes the payment of these penalties, renegotiation is exempt from this cost.
Furthermore, it generally incurs lower administrative fees and does not require modifying the guarantees associated with your loan (mortgage or surety). It is a quicker and less administratively complex process, which can make the operation overall more profitable, even if the interest rate obtained is only slightly lower than what a buyout offer might propose.
The conditions for renegotiating a home loan
For your loan renegotiation request to be accepted by your bank, several conditions generally need to be met. The lending institution will assess the feasibility of the operation based on the potential savings for the borrower and its own commercial interest.
Key criteria for a rate renegotiation to be considered include:
- The interest rate gap: the initial rate should ideally be at least 0.70% to 1% higher than the current market rate.
- The remaining repayment duration: it is preferable that at least one-third, or even half, of the loan duration is left to run for the impact on the total cost of credit to be significant.
- The remaining capital owed: the amount of credit still to be repaid must be significant enough for the savings made to offset the administrative fees and other banking costs.
A good account management and a trusting relationship with your advisor are also major assets.
When to renegotiate your loan?
The ideal time to consider renegotiating your home loan generally falls within the first third of the repayment duration of the loan.
It is during this phase that the burden of interest is the heaviest, making the impact of a rate decrease maximal on the total cost of credit.
For the process to be relevant and profitable, there must be a significant drop in market interest rates compared to the rate stated in your initial loan contract, ideally by at least 1%.
It is also important to act while the remaining capital owed is significant, as the savings achieved on future monthly payments will be proportional to that amount. Regularly monitoring financing conditions is therefore key to seizing the opportunity for a favorable renegotiation with your banking institution.
Assurly: an immediate savings lever through insurance delegation
If rate renegotiation is a complex process, the borrower has another powerful lever to reduce the total cost of credit: loan insurance delegation. As we have seen in the first part, changing insurance is a simplified process under the law. Providers like Assurly offer insurance contracts that can lead to significant savings.
This action presents several major advantages:
- Reduction of the Effective Annual Rate of Insurance (TAEA): you often obtain coverage equivalent to or greater than at a more advantageous rate with an external insurer such as Assurly.
- Termination at any time: thanks to the Lemoine and Bourquin laws, changing insurance can be done without fees and at any due date.
- Simplified process: the operation, often digitized with innovative insurers, incurs no additional administrative fees or management costs.
By targeting loan insurance, you tackle the second largest expense