Surprisingly enough, the latest economic crisis that we have had to deal with in recent years, and the after-effects of which are still palpable, also has positive consequences. In recent months, interest rates have indeed never been lower than today and that is particularly good news for homeowners, for whom it is now really interesting to refinance their current home loan. How do we determine whether it is interesting to negotiate with his home banker about the revision of his home loan or other loan? An important question, because more than seventy thousand mortgage loans were taken out during the second quarter of this year. More than ten percent of this involved refinancing of a current (home) loan. Based on these results, the number of refinancings in the past quarter is at the highest level in three years.
continuously monitor credit
During the term of his (home) loan, it is advisable to regularly ask himself whether it would be interesting and therefore profitable to refinance his current loan. According to financial experts, an annual review of his current (home) loan is recommended. Especially now that interest rates are at an absolute low, today is the time to renegotiate his current home loan with his banker, which will certainly yield a lot of profit. However, it is important that one does not focus solely on the interest on the current loan. A refinancing is indeed only interesting as soon as an interest rate difference of at least one percent is established and the remaining term is at least ten years. Whether refinancing his home loan is worthwhile depends on various factors.
Internal or external financing
The cost of his loan is partly determined by whether it concerns an internal or external refinancing. With internal financing, people will try to negotiate more interesting credit terms with their trusted banker. With an external refinancing, better credit conditions are sought from another bank. An internal refinancing entails lower costs than an external refinancing. Of course, the house banker also knows that? and will therefore not immediately propose his (regular) customer his most advantageous rate. Refinancing his (home) loan with another bank usually offers better conditions in this regard. With an internal refinancing, other factors must also be taken into account. In addition to file costs, you also have to pay a reinvestment fee. This amounts to at least three months’ interest on the outstanding capital. Every bank charges such a reinvestment fee, even if this is not legally required. Such a reinvestment compensation is regarded as compensation because the original conditions of his credit agreement have not been met. In the case of an external refinancing, in addition to these file costs and the reinvestment fee, there are also the costs for the so-called manual settlement of the mortgage and the mortgage costs for the new loan to be taken out. After all, the new bank also wants a first-ranking mortgage on the home to be financed. And the latter is only possible when the old credit has been officially canceled.
Don’t compare apples with lemons
Only when a borrower has an answer to all these questions will he know whether such a refinancing of his home loan is really worthwhile. In addition, one must keep an eye on the total costs and not compare apples with lemons here either. First of all, one must decide whether one chooses a variable or a fixed interest rate. One should not lose sight of the fact that the monthly repayments of his variable housing loan can undoubtedly increase in the coming years. Especially when you know that the profit margins that banks take on formulas with a variable interest rate are noticeably higher than a few years ago. Switching from a fixed to a variable loan formula may not currently be an advantageous solution in the longer term.
Variable home loan on the rise
Home loans with a variable formula have been on the rise in recent years. Two years ago, more than 85% of those who took out a home loan opted for a fixed interest rate. At the beginning of this year, this figure had fallen to just 36%. An important observation here is that during the same period the share of the loan formula with an annually adjustable interest rate increased from almost 2 to… 46%. Home loans whose interest rates are adjustable every three years also rose noticeably to above ten percent. And now it appears that in recent weeks, loans with a fixed interest rate are clearly gaining interest again. Watching out and comparing is also the message here.