Should you refinance your French mortgage to take advantage of better rates ?
With French mortgage rates dropping to all-time lows, now can seem the perfect time to remortgage. But before you start the process of looking for bank statements and pay slips, here are a few guidelines to help you assess whether it makes sense to refinance the loan you took out to buy your French home.
1. Remortgage if you can minimise your total cost of borrowing. Switching mortgage provider in France is not as smooth as it can be in the UK. In addition to the administrative process, refinancing involves fixed and variable fees. All in all, legal fees, early repayment charges and administrative costs will account for about 5% of the loan amount. It is therefore important to look beyond interest rates.
As a rule of thumb, re-mortgaging will make sense and will save you money if:
– The rate you are currently on is 1% higher than the new rate you are offered;
– You are closer to the beginning than the end of your existing mortgage loan;
– Your outstanding balance is higher than €50,000.
Finally, as lenders require mortgage protection insurance, you will need to consider the cost of a new policy, particularly if you have new or pre-existing medical conditions.
But it can be worth it ! A borrower who took out 20 year €200,000 mortgage at a rate of 4% in 2011 would save €9.182, net of fees, if he remortgaged on a 2.9% deal without increasing the term.
2. Remortgage to raise capital If you have equity in your home or don’t have a French mortgage, it may be worth contemplating taking cash out in addition to re-mortgaging. Borrowing against your French property can be a very effective way of raising capital, financing renovation work, or repaying more expensive debts either in France or in the UK.
3. Remortgage to switch to a fixed rate loan
If you intend to keep your French property for the years to come, a low rate environment can be a perfect time to move from a tracker to a long term fixed rate mortgage. Similarly, if you are on an interest only deal, it may be worth remortgaging to avoid early repayment fees and to anticipate the amortization period.
In any case, an authorised mortgage broker will be able to assist you with exploring options and recommend a product suitable for your needs.