Mortgage refinancing (external)
An operation consisting of early repayment of an existing mortgage at a new bank that grants a new loan on better terms (lower rate, adjusted term). The broker must calculate the true net saving by incorporating early repayment penalties, release fees, new loan guarantee costs, and arrangement fees, to confirm that the transaction is financially worthwhile.
Key points
- The true net saving factors in early repayment charges, release fees, new guarantee, and arrangement fees.
- The operation is worthwhile if the payback period for fees is shorter than the intended remaining term.
- The broker compares the residual total cost of the old loan to the total cost of the new one.
- A rate gap of at least 0.70% to 1% is often cited as a minimum interest threshold.
Frequently asked questions
How is it calculated whether a mortgage refinancing is truly worthwhile?
The broker totals the costs to be paid out (early repayment charges capped at 3% of the outstanding capital or six months' interest, release fees, new guarantee, arrangement fees) and compares them to the monthly saving generated by the lower instalment. The quotient gives the payback period. If this period is shorter than the intended remaining months, the operation is worthwhile.
What is the difference between rate renegotiation and external mortgage refinancing?
Renegotiation happens with the current bank: no release fees, no early repayment charges, but the saving is often limited as the bank faces no competition. External refinancing involves a new bank: costs are higher but the rate gain can be greater. The broker compares both options in figures to recommend the most advantageous one.
What mistakes should be avoided when refinancing a mortgage?
Avoid extending the remaining term simply to lower the monthly payment, as the total cost of credit would increase. Do not forget to price the new borrower insurance, which can significantly reduce the apparent saving. Avoid comparing only headline rates without factoring in all costs: it is the compared residual total cost that matters.
In practice
A borrower has an outstanding balance of €180,000 at 3.80% over 15 years. A new bank offers 2.60%. The broker calculates early repayment charges, release fees, and new guarantee at €4,200. The lower monthly payment saves €120 per month, giving a payback period of 35 months.
Put it into practice with CourtImmo
See how CourtImmo software helps brokers on this topic:
Official sources
- Renegotiate or refinance a mortgage · Service-Public.gouv.fr
- Obtaining a mortgage loan · Service-Public.gouv.fr
- Mortgage credit (official guide) · Service-Public.gouv.fr