Very low interest rates encourage homeowners to renegotiate their mortgage. The repurchase of mortgage offers the possibility of repaying its loan by means of a new cheaper credit, either to reduce the amount of the maturities, or to shorten the duration initially envisaged.
The repurchase of mortgage in the context of a renegotiation of the interest rate
A credit repurchase transaction is interesting if the number of years remaining is greater than the number of years passed. Clearly, this means that if the initial term of the loan is 20 years, it will not be interesting to renegotiate the mortgage if there are less than 10 years before the term of the loan.
Indeed, the borrower will have already paid the majority of the interest, and he will only have the principal to repay. So why pay for new ones?
The outstanding capital must be greater than 50,000 dollars for a real profit, and the rate difference must reach at least 1 point. If the borrower has taken out a mortgage at 3.5%, the new rate should be a maximum of 2.5%.
The repurchase of mortgage must also take into account the costs charged to the borrower:
• the prepayment penalties provided for in the contract, which are certainly framed by law, compensate the lender for the loss caused; they are limited to 6 months of interest or a maximum of 3% of the capital remaining due;
• any warranty costs.
The buyback operation must cover these costs. The total cost of credit should also be kept in mind: the longer the term, the higher the cost.
The repurchase of mortgage in the framework of a grouping of credits
Credit consolidation consists in repaying various loans, including real estate, to pay only one monthly payment, generally less important than the sum of all the installments. This type of operation is intended to generate more cash or finance a new project.
Here again, care must be taken to calculate that the gain obtained by the repurchase of credit covers as well as the penalties of early repayment of the mortgage.