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Should you renegotiate or buy back your mortgage?

Mortgage loan


Mortgage rates have never been so low. They continue to fall. But should you take the risk of refinancing your loan?  Is this really a wise decision in any case   ? To help you see more clearly, Marc Geib, head of Lending & Companies at ING, has agreed to take part in the quiz.


What are the indemnities provided if I want to repay my loan in advance in order to be able to refinance it?

It all depends on your individual situation. If you took out a mortgage at a variable rate, you can repay it at any time without any compensation. On the other hand, if you have taken out a loan at a fixed rate, compensation is expected but things have changed since the transposition into Luxembourg law by the Law of 23 December 2016 of the European Directive 2014/17 / EU. This MCD (Mortgage Credit Directive) Directive deals with credit agreements relating to residential real estate and, in particular, makes it easier for consumers to prepay their fixed rate loan [1] .

In Luxembourg, the indemnities devolved to the bank in the event of early repayment of a fixed rate loan can not exceed 6 months of interest. Two conditions must nevertheless be fulfilled. You must have taken out a loan to acquire a home that has been used as your real and principal home for an uninterrupted period of at least two years. The prepayment can not exceed the amount of 450,000 euros.  


When does it become financially attractive to refinance your loan? 

The answer is not simple because it is necessary to take into account the wishes of the customer. If the customer prefers to opt for security and wishes to have a greater visibility in the payment of his monthly payments, he may very well decide to refinance his variable rate loan as a fixed rate loan. Given the low interest rate situation, the difference in rates can be very small, if not non-existent, and the customer is assured of paying the same amount each month for the duration of the loan, even if rates should start rising again. in the years to come.

On the other hand, if the client wishes to renegotiate or buy back his fixed rate loan, an analysis should be made taking into account the potential interest gain and the cost of a possible penalty for leaving the fixed rate contract. It is recommended that the client contact his relationship manager to help him in this process and find the solution best suited to his needs.

It is worth remembering that there is an intermediate solution between the fixed rate and the floating rate   : the revisable fixed rate. You keep a fixed rate for a specified period (typically 3, 5 or 10 years) and at the end of each period you decide to either continue with a fixed rate or change to a floating rate until the end of the period. the next period and so on.   The advantage of this rate is that it combines fixed rate security and variable rate flexibility. You play the protection during the first periods of your contract where the interest due is higher and, at the end of each period, you take advantage of any market opportunities:  or you choose a floating rate if interest rates tend to fall at the end of the term, or you keep a fixed rate if the opposite happens.


Should you change your bank to renegotiate or buy back your mortgage?   ?

No. In principle, the rules of the game remain the same, regardless of the bank. However, in the interest of the client, it is better for the client to take the right decision as far as possible from the outset, when contracting the initial loan. And there the banker has his role to play. We generally advise our clients to take out a variable rate loan if they want to buy a home for a very limited period of time and a fixed rate loan for a longer period.


Find  all the advice  of ING experts.


Keywords: loan, mortgage, ING, monthly payments, loan, repurchase, refinance, renegotiate, rate, fixed rate, floating rate, floating rate


[1] See our article Find out more about the European Standard Fact Sheet .