When the accumulation of monthly payments of credit begins to weigh heavily on your finances, or that you cannot manage any more to pay them, do not wait to arrive at over-indebtedness. If you are the owner of your home, you can use mortgage loan redemption.
What is mortgage credit?
The mortgage loan consists of a loan accompanied by a mortgage guarantee. Concretely, the owners of a property offer it to the lender as collateral. If the borrower is no longer able to repay, and all other remedies have been exhausted, the bank can decide to put the property up for sale to recover its claim. But if the credit is repaid in full according to the agreed terms, the mortgage ends.
The mortgage is highly appreciated by lenders for the optimal security it offers them. This guarantee also allows applicants to borrow to negotiate a more advantageous interest rate at the first request or at the time of a renegotiation or a loan repurchase.
Its implementation requires the establishment of a notarial deed and registration at the mortgage office. Because of its high cost, the mortgage is a guarantee generally reserved for operations involving very large sums, mainly mortgage loans.
What is a mortgage loan buyout?
The repurchase of mortgage loan consists in regrouping one or more debts in the course of reimbursement with a single financial organization which will take care of repaying them for you. He becomes your only creditor and you pay him a single monthly payment at the reduced amount, but spread over a longer period. This lengthening of the term mathematically increases the total cost of the consolidated loan, but allows you to immediately find a certain budget peace of mind.
The operation is called “mortgage” because it is based on a “mortgage guarantee”. In other words, you guarantee the repayment of the new monthly payment to the new lender by setting up a mortgage on a property that belongs to you. If you do not pay the monthly payments according to the provisions of your loan repurchase contract, your creditor is entitled to request the attachment of the property concerned to recover its due.
Even if the repurchase of mortgage credit is more frequently used to restructure debts including a mortgage, in the larger amount, it is possible to redeem only consumer loans, even if a mortgage is in progress. It is the mortgage of the property to guarantee the operation that makes it a “mortgage” credit.
However, depending on your situation, and if you do not want to mortgage your property, you can choose to use a combination of conventional consumer credits. You are then exempt from paying the notary fees for the mortgage, but the interest rate may be slightly increased.
You can perfectly mortgage your property, even if the credit that was used to finance it is still being repaid.
Please note that both renegotiation and mortgage redemption involve certain costs. It is essential to properly calculate the potential gain before getting started. A simulation can be very useful.
When to buy back mortgage?
There is no hard and fast rule. A mortgage loan buy-back can be done at any time if the amount of debt to be consolidated is high enough to justify it or if you have an urgent need for money.
Indeed, when you have trouble finishing the month and your bank account turns red, your bank will probably refuse to renegotiate your credit (s), because you no longer have sufficient security for it to take long-term risks.
Placing your house or apartment as collateral is often the only way to overcome your reluctance. Not only is it easier to get the money you need, but you can get a good interest rate. This is the main advantage of mortgage consolidation: turning part of your wealth into cash when you need it.
This operation is particularly recommended if:
- You want to generate additional cash to invest in a new property (rental, second home) or finance another project requiring significant funds;
- Your debt ratio is excessive and you must reduce these monthly payments that you can no longer pay in return for a longer repayment period;
- On the contrary, you want to reduce the duration of the loan, because the longer you are in debt, the more the total cost increases;
Reassured by a guarantee that is the subject of an authentic deed and of significant value, lenders are more inclined to accept your request for credit consolidation even if you are FICP registered and grant you more attractive rates.
In addition, allowing to group much larger amounts than real estate or consumer loans, it is the most common debt consolidation operation for homeowners. By putting your property as collateral (mortgage), you have much more flexibility than a tenant.
How does a mortgage loan buyout work?
The first step is to study your financial health. If the bank considers that it can accept your file, it requests an appraisal of the property that you are putting into mortgage. Its value determines the amount you can get. The average quota is 70%: it is a percentage of the value of the property used as collateral and which determines the maximum amount that you can borrow.
For example, for a house valued at $ 100,000 with a quota of 70%, the capital requested cannot exceed $ 70,000. The comparison between several organizations is essential to benefit from the highest possible quota, because some credit institutions offer only 50%, while others go up to 100%!
Then, it reimburses all your creditors and sets up a new contract with reduced monthly payments and spread over a maximum period of generally 25 years. Thanks to this unique loan, managing your finances is easier. No more deadlines for various amounts and withdrawal dates, you only have a monthly withdrawal of a more bearable amount.
In the event of your default before the end of the grouped loan contract, your new creditor may decide to resell the mortgaged property and repay himself with all or part of the income from the sale. However, resale occurs only as a last resort ; the search for amicable solutions always comes first.
The interest rate for a mortgage grouping is not the same as that for a conventional mortgage. Of course, in both cases you therefore have the choice between capped revisable rates and fixed rates. But the redemption rates are almost always higher by around 1 to 3 points.
If in the future you want to sell the property that you used as collateral for the mortgage loan consolidation, it is possible! With the money from the sale, you settle the consolidated loan. Either the mortgage is lifted, or it is backed by another house, for example the one you just bought.
Is it easy to buy a mortgage?
When mortgage consolidation is for new real estate investment, it usually means that you have no particular difficulty to overcome, so you will have no trouble getting the loan you want. Indeed, the new property, if it is rented, ensures a return of money allocated to the repayment of the loan, minimizing the risk of non-payment for the bank. Some establishments do not hesitate, in this type of situation, to extend the reimbursement period to 40 years instead of the usual 25 years.
On the other hand, if the operation aims to finance non-real estate projects (purchase of a car or household goods, carrying out work in your accommodation, acquisition of shares in a company, etc.), the duration of reimbursement rarely exceeds 20 years.
Finally, in the event that you are unable to repay your debt repurchase, the sale of the new financed real estate will allow you to replenish the fund.
What are the real risks of buying a mortgage?
Like a “normal” loan, the repurchase of mortgage loan engages you and must be reimbursed. You must therefore seriously assess the relevance of the operation (and of your project if applicable) and check your debt capacity.
But in general, it is a less risky operation than we think. On the one hand, unlike the United States, where this type of transaction is very widespread, French bankers are more strict and rigorous on the study of the creditworthiness of a borrower before granting him a loan so that you do not risk not to end up on the street like the American victims of “subprime”.
In addition, credit and housing rules have changed in France. Indeed, the owners were previously excluded from the recovery procedure permitted by the filing of a file with one of the over-indebtedness commissions of the BanFranc, on the grounds that they only need to sell their property to obtain the money needed to repay their debts.
Recent regulatory developments have changed the game, including the owners of their homes. Considered as a fundamental right, the domicile of an individual is an essential good and is no longer as easily seizable. Today it is difficult to evict, even in the event of non-repayment of your credits. One more reason not to be afraid of mortgage credit; moreover, the statistics are in your favor.
The main risk with mortgage credit is the possible depreciation of your property. Indeed, in such a situation, even if you sell your house, the proceeds of the sale will no longer be enough to cover all of your debts.
Where to buy a mortgage?
Renegotiate your mortgage
You can start by renegotiating your mortgage loan with your own bank in order to benefit from more advantageous conditions : increase in borrowed capital, more competitive interest rate, longer repayment term or reduced monthly payments.
If the banker accepts the renegotiation, certain costs may apply: re-employment indemnity costs, new mortgage costs and possibly administrative costs (do not hesitate to negotiate their free or reduced price.)
Renegotiation is the simplest and quickest alternative, but few lending organizations are enthusiastic about changing the original loan terms, as it often means losing money for them. They are a little less reluctant if you have a great profile and want to keep you in their wallet.
For others, if your bank refuses to renegotiate, you have everything to gain by contacting a competing establishment. The new mortgage will allow you to settle the old one, since the law of August 4, 1992 authorizes you to have your mortgage repaid, provided that this repayment is total.
Play the competition
If you do not renegotiate, you can request a mortgage loan repurchase from your own bank. In this case, there is no file transfer. But you can also decide to leave your accounts and your savings in the current establishment and contact another for redemption.
A large number of financial institutions offer the grouping of mortgage loans, some institutions have made their specialty of it, which allows you to access very interesting offers and to benefit from quality support by experts from that sector.
Note, however, that you cannot reuse the same mortgage as for your initial home loan to cover the buyout contract. In fact, the new creditor reimburses your old debt, rendering the attached mortgage obsolete. So you have to take a new one.
Why do a mortgage buyback simulation?
Do you want to have a first idea of the conditions you can claim? Do you want to know the cost / benefit of buying back the mortgage you are considering?
Perform a simulation with your credit repurchase intermediary. The service is free and fast, and the very relevant proposals you will get will allow you to refine your project.
Why use a broker to buy a mortgage?
Carrying out a mortgage loan is a complex operation requiring special attention. However, your usual banker may not be able to provide you with the support you need. A prior comparison of the proposals from different establishments is therefore essential.
To simplify the process and save time while having the assurance of benefiting from the best conditions adapted to your needs, you can call on an intermediary specialized in this type of financial arrangement.
First, this expert helps you to take stock of your financial situation and set your goals. On this basis, it seeks for you the optimal proposal from its partners. This assistance has only advantages for you, borrower, especially since there are few individuals who master the art of banking negotiation.
If you worry about his remuneration, know that it is the bank that pays him a commission as a business introducer.
For example, in most cases, while the refinancing amount is between 50% and 80% of the estimated value of the mortgaged property, thanks to his excellent knowledge of the market, the broker is able to find you offers of repurchase of mortgage credit reaching 90% of the value of your property.
How much does a mortgage loan buy-back cost?
The intervention of a notary is compulsory to establish the authentic act of mortgage allocation. Also, unlike a grouping of simple consumer loans, the repurchase of mortgage credit necessarily generates notary fees of 2% on average. However, you do not have to pay them, as they are included in the new funding.
In addition, the change of lending organization induces various additional costs: the appraisal file, the lifting of the mortgage drawn up for the benefit of the bank which initially granted you the loan, and if necessary, the reimbursement penalties. anticipated to be paid to the first lender (the law limits these indemnities to 3% of the remaining capital of).