Mortgage refinancing is still very popular, as 30% of the total loans are refinanced every year, so there is something about refinancing that compels people to opt for it. But, the question comes as to what options do you have when it comes to refinancing. Let’s delve into details of the same.
The first option: refinancing with your current bank
Refinancing is based on the principle that everyone has the right to prepay an existing mortgage. Nothing prevents you from doing so by taking out a new, more advantageous home loan. With this money, you can repay your older (and more expensive) mortgage.
You can conclude the refinancing with your bank. In this case, you will have – as compensation – to pay 3 months of interest on the amount repaid from your old mortgage. Indeed, in the case of early repayment, the bank will have to reposition its money at a lower rate and will, therefore, suffer financial losses.
You can easily calculate if refinancing is right for you. Compare the total amount of the repayments that you still have to make (principal and interest) for your old loan + 3 months of interest on the amount reimbursed with the overall costs related to the repayment of a new mortgage loan plus the application fees for this new home loan.
If the latter is more advantageous, you can opt for refinancing. Please note: your bank is not obliged to grant you this refinancing!
The second option: refinancing with another bank
The situation is different if you refinance your mortgage with another bank. In this case, you will have to contact the notary again to register your new mortgage. Indeed, a new mortgage will have to be lodged as collateral for your new bank. The latter wants to have the right to resell your home and use the proceeds of this sale for reimbursement in case you do not meet your financial obligations. At the same time, the mortgage guarantee for the old bank will have to be canceled.
In addition to the re-employment allowance corresponding to 3 months of interest, refinancing with another bank, therefore, involves a few additional costs: release, registration of the mortgage for the new bank, and notary fees. Finally, you can also have to pay a certain administrative fee, as it will be necessary to create a completely new dossier.
Here too, the calculations you need to do to check if refinancing is worthwhile, are done according to the same model. How much do you still have to repay for your old mortgage and how much do you have to repay for your new home loan (including all fees)?
Take into account that your old bank knows that external refinancing also involves higher costs. This is why some financial institutions apply a higher rate for ‘internal’ refinancing than for ‘external’ refinancing.