Reducing the fixed rate of a credit through a redemption will have more impact during the first third of the life of the mortgage. Borrowers repay more interest during this period.
Save money by reducing the rate of your mortgage
On the occasion of the historic drop in 2016 rates and a continuation of low interest rates in 2017, many borrowers were interested in the renegotiation of a loan and the repurchase of mortgage. Indeed, for millions of real estate borrowers, this new deal is synonymous with substantial savings. Visiting his banker or calling on a specialist in credit redemption have become automatic since 2016. It should be remembered that the lowest average rate was calculated in the previous autumn with 1.31%. Statistics have confirmed this trend as nearly one out of two credit transactions has been a buy-back or renegotiation.
Among the many tips for candidates to buy their home loans and consumption, one of them often comes back: it is better to renegotiate his credit during the first years of the contract. Why do you have to buy your mortgage as soon as possible? The explanation lies in the structure of real estate financing.
A monthly payment that reimburses both capital and interest
In fact, when subscribing to the loan, the borrowers contract under a fixed fixed rate. This rate and the capital borrowed will make it possible to determine the total amount of financing (excluding borrower insurance). Thus each paid monthly payment contains two parts: the repayment of the capital and the interest of the credit. For the borrower, this distribution between the two parts is invisible since the amount of the monthly payment remains unchanged throughout the duration of the credit.
Nevertheless, it should be noted that the share devoted to interest will be higher during the first years. The borrower can verify this fact in his depreciation schedule. Over the years, the amount paid in interest decreases. For example, for a 20-year loan at 1.35% fixed rate, borrowers will have paid more than 1,900 euros in interest the first year against less than 180 euros for the 20th year.
The first years of a credit are more interesting for a buyout
In a mortgage repurchase transaction, borrowers seek to lower their fixed rate. The reduction in this rate will therefore affect the share of interest without affecting capital. For example, loan buyback brokers recommend filing an application during the first third of the loan. Because it is during this period that the borrowers will repay the most interest.
Of course, it is not excluded to redeem your loan in the following years but the savings will be lower. Finally, intermediaries in banking operations also insist on the difference between the new and the old rate which must be at least 0.7 points to be interesting.