Reimburse a loan early: what you need to know

When negotiating their car loans- click to read, very few borrowers are interested in the terms of early repayment. Too bad, because it would allow them to save money, very few loans until their term.

If the average duration of a mortgage was 199 months or 16.6 years, in February 2014, according to Housing Credit Observatory-CSA, “less than one in ten goes until the end of the term! And almost none of those whose duration is close to 20 years, ” says Bruno Rouleau, key account manager at the broker Cafpi. “The owners resell their property after 7 to 9 years on average,” confirms Cécile Raynaud, marketing manager at Meilleurtaux.com.

ACCIDENT OF LIFE

In most cases, the underwriter sells his home to buy a larger one because the family is growing. An assignment, which extinguishes the credit, may also be the result of an accident of life, such as a divorce or death. “Not to mention the borrowers who renegotiate their credit to benefit from a better rate. They accounted for 23% of the files we handled in 2013, ” says Rouleau.

The first thing to know, the bank cannot oppose it, unless it is a partial refund of an amount less than or equal to 10% of the original loan amount. The compensation that the establishment may require must be specified in the contract. Its amount is capped: it cannot exceed six months of interest on the amount of capital that you want to repay in advance, without being able to exceed 3% of the outstanding capital.

Example: an individual who has taken out a loan of 300,000 euros at a nominal rate of 3.5% over 20 years wishes to repay in advance all outstanding capital after 7 years, or 220,860 euros. The maximum compensation he will have to pay will be EUR 3,865.05. It corresponds to the lowest result of these two calculations: 6 months of interest on the sum reimbursed: 220,860 × 6 × 3,5% / 12 = 3,865.05 euros and 3% of the outstanding capital: 220,860 × 3% = 6,625.8 euros.

MARGIN OF NEGOTIATION

It is possible to negotiate the reduction or even the cancellation of this allowance, especially if you subscribe a new mortgage in the same bank. “You really have interest in negotiating this clause if you know that you will sell your property for 4 or 5 years,” insists Bruno Rouleau. The shorter the borrowing period and the more reassuring the profile of the borrower, the greater the trading margin.

If this is your case, it is possible, for example, to obtain a withdrawal of compensation from a certain period of detention. “But, in case of redemption of the loan by a rival credit institution, the compensation will still be due,” says Ms. Raynaud.

For loans taken out since June 30, 1999, no indemnity is payable by the borrower if the early repayment for the sale of the property follows a change in the place of business of the borrower or his spouse, termination or death of the borrower or his or her spouse.