Borrowing rates for home loans vary constantly. For several years, these rates are regularly revised downward, a decline sometimes very important. It is thus not uncommon to find a property financed at the beginning of 2010 at around 4%, which could, if it was currently subscribed, be less than 2%.
On significant sums, such as sums allocated to real estate financing, this significant difference in rates represents a sizeable saving.
It is thus tempting to buy back his mortgage by another lender, at a better rate. Be careful, however, the fees applied in case of redemption of mortgage.
Early repayment allowance (IRA)
The initial bank that financed a real estate property does not generally like its offer being bought by one of its competitors. This is why it almost always applies several prepayment fees. These fees are generally around 3% of the total amount due.
For example, if you borrowed 200,000 USD to buy a property, you will need, in the event of a credit buy-out by another organization, to finance, in addition to the remaining balance, an IRA of about 6,000 USD.
Depending on the amounts borrowed, IRAs can be worth several thousand USD.
In addition, the issuing bank is not the only one to charge a redemption fee. In fact, the bank wishing to buy back the credit concerned also applies a handling fee.
Fees and ancillary costs of real estate loans
The application fees applied by the new bank are, for the most part, approximately 1% of the total amount borrowed. To use the same example, if 200 000 USD remain to be bought back, the file fees alone will represent 2 000 USD.
These fees, contrary to the IRA, are, on the other hand, generally negotiable with the new bank.
Moreover, in case of mortgage guarantee present in the subscription of the first loan, the costs of mortgage, notary fees and various guarantees are also due.
For information only, when the purchase of real estate credit costs 200 000 USD, the total amount due in case of redemption ( IRA + fees + notary fees + mortgage miscellaneous fees ) is generally around 10%, nearly 20,000 USD.
The savings realized in the event of redemption must therefore cover these costs to be profitable.