Renegotiate a loan: Early loan repayment

Take advantage of a drop in interest rates, have recourse to credit to make a new purchase or simply find a balanced budget: all reasons to request the renegotiation of one or more loans being repaid.

 

Renegotiating a loan: Legal framework

Renegotiating loan

The renegotiation of a loan normally leads to:

  • either by extending the duration of the current loan,
  • or the redemption of the capital remaining due.

In the first case, since there is no change in the amount borrowed and the interest rate, the modification of the loan contract takes place by simple amendment. The second operation involves the negotiation of a new loan offer leading to the early repayment of the current loan.

 

Early repayment of a consumer loan

consumer loan

The borrower can always prepay the credit granted to him. In the case of a partial repayment, the lending institution may however require the payment of a minimum amount equivalent to 3 monthly payments.

No compensation is due for the early repayment of a consumer credit (article L 311-29 of the Consumer Code).

 

Early repayment of a mortgage

mortgage loan

An early repayment is in principle possible. The loan contract may however provide that partial repayment, less than or equal to 10% of the initial loan amount, is prohibited, except in the case of the balance. Early repayment may give rise to the payment of compensation which may not exceed:

  • the value of 1 semester of interest on the principal repaid at the average rate of the loan,
  • without being able to exceed 3% of the capital remaining due before reimbursement.

NOTE: for loans concluded since 06.29.99, no compensation can be claimed if the repayment is motivated by certain events: death, dismissal, disability or sale of the building (main residence) following the change of place of activity professional of the borrower or his spouse.

 

Renegotiating a loan: things to consider

Renegotiating a loan: things to consider

When to renegotiate?

Before any renegotiation, the borrower must verify several elements.

First, he must reread the loan contract and examine the possible conditions imposed for the renegotiation of a loan: for example, in the case of a mortgage, the franchise period during which any renegotiation is impossible, the minimum amount that can be reimbursed or the costs related to the operation.

Analysis of the amortization of the current loan is then necessary. The amortization table given at the start of the loan shows month by month the share of interest and the share of capital representing the amount of the monthly payments. Depending on the type of loan taken out (classic, constant maturity, progressive maturity, bridging loan, ultimately …), capital is not amortized in the same way. The overall cost of the renegotiation will therefore be different depending on the type of depreciation. The younger the credit, the more significant the savings are likely to be after the renegotiation.In the case of a loan with constant maturity (the vast majority of loansgranted to individuals), it is easy to note that in the first years of the loan, the borrower mainly pays the interest and the capital borrowed pays off relatively little.

Finally, for “the game to be worth the candle”, it is necessary to identify and calculate the various costs caused by the renegotiation of the loan.

Nature of renegotiation Costs incurred
 
Extension of the loan period
(not modifying the amount borrowed and the rate)
Contract amendment fees
(costs normally negotiable)
Takeover by the lending institution
(resulting in a new loan offer)
Penalty for early repayment
(costs normally negotiable)

New borrowing fees
(costs normally negotiable)

Acquisition operated by a competing establishment
(resulting in a new loan offer)
Penalty for early repayment
(fees difficult to negotiate)

Mortgage lifting
(or setting up a second mortgage)

New borrowing fees
(costs normally negotiable)

Introduction of a new mortgage or other guarantee
(except in the case of setting up a second mortgage

Who to renegotiate with?

renegotiate loan

Nothing obliges the borrower in the choice of his interlocutors for the renegotiation of his loan: it can be the initial lending establishment or another establishment. Soliciting the lending institution is in principle a source of savings, particularly with regard to application fees or the penalty for early repayment

However, nothing obliges the banker to respond to a request for renegotiation. It is often the pressure of competition that forces it to do so. The quality of the relationship with the client is generally the essential criterion taken into account when faced with a request for renegotiation. Continuous domiciliation of salaries, level of equipment in banking products and services, amount of savings accumulated since the loan was taken out, payment incidents, etc. are all elements that will be analyzed by the banker.

In practice, the banks are careful not to lose customers and choose willy-nilly to renegotiate a loan rather than having it bought by another establishment. In this regard, policies may vary from one establishment to another. We will usually talk about a long-term arrangement when it comes to renegotiating a “house” loan. The repurchase will rather concern a loan taken out in another establishment but it can however be used for a loan “house” when the situation requires it or if the customer is “interesting”.

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