Refinance my Mortgage Loan

All things being equal, people will buy from a friend. All things being not quite so equal, people will still buy from a friend (Mark McCormack)

To refinance or not ... that's the question?

Due to the substantial drops in rate in 2002 - 2004, lots op people are questioning themselves if it wouldn't be interesting to refinance their existing loan.
It's a very simple question, though the answer is not easily given, it requires a thorough analysis which is certainly worth doing.
Follow our guidelines below and find out if it's interesting for you!

How to analyse this?

The key question is:

Does the advantage of the lower rate counterbalance the disadvantages of the refinance?

What are these disadvantages?

Compensation fee (1/5)

The compensation fee is a sort of fine you will have to pay when you want to refinance your loan (or a piece of it) earlier than intended. Mostly it amounts up to 3 months of interest on the sum you want to pay off.

For example:

Case:
° Mortgage loan concluded exactly one year ago for an amount of 100.000 EUR
° Initial rate: 6.75%
° Initial duration: 20 years
° Amortization: 748.51 EUR
° Remaining sum: 97.132 EUR

The compensation fee of three months amounts up to: 97.132 x 0.0675 x 3/12 = 1.645 EUR

Removal or cancellation cost of the mortgage loan (2/5)

This is an amount you have to pay to cancel the old mortgage loan at the therefore established office. In the table below you'll find the approximate amount.

Original amount	Penalty fee
25.000	395.01
30.000	423.98
40.000	431.08
50.000	453.29
60.000	464.69
70.000	472.58
80.000	496.10
90.000	501.80
100.000	525.33
125.000	557.97
150.000	589.47
175.000	623.26
200.000	654.67
250.000	697.66
500.000	952.92

In our example you will have to pay approximately 525 EUR

New credit report fees (3/5)

This normally costs about 0.30 % of the amount you want to loan; mostly limited with a minimum of 150 to 220 EUR.

Let's say in our example: 220 EUR

Appraisal fee (4/5)

A licensed appraiser appointed and recognised by the mortgager will estimate the value of the real estate in order to define the exact loan-to-value percentage.

This cost depends on the mortgager, let's say: 180 EUR.

New deed of loan or loan act (5/5)

Eventually the notary will have to draw up a new deed for the new loan.
This is a cost that depends on the amount you have to borrow.

What's the amount up till now?

° The principle you have to refinance (consult your amortization schedule): 97.132 EUR
° The compensation fee (1/5): 1.645 EUR
° The penalty for removal of the (old) mortgage loan (2/5): 525 EUR
° The new credit report fees (3/5): 220 EUR
° The appraisal fee (4/5): 180 EUR

Subtotal: 99.702 EUR

The loan act cost for the new loan amount can be calculated here.

In our example this cost amounts up to approximately: 2.603 EUR

To be able to compare one thing with another we also have to take this sum in account to refinance the mortgage. The total amount you have to borrow is:

Subtotal: 99.702 EUR
Loan act cost: 2.603 EUR

New loan amount: 102.305 EUR

(Slight remark: in reality we have to calculate the closing costs on the amount of 102.305 EUR (=2.652 EUR) instead of 99.702 EUR, but as we talk about a small difference we will not take it in account).

Overall picture for refinancing your present mortgage loan:

We now know how much exactly we have to borrow for the new mortgage: 102.305 EUR.

But the key question remains, is it interesting or not???

Refinancing is interesting if the amortization of the new mortgage loan is lower than the one of the old loan ON THE REMAINING DURATION.

In our example:

° Old situation: you still have to pay the same amortization of 748.51 during 19 years.

° New situation: you have to conclude a new mortgage loan for 102.305 EUR during 19 years.

What you have to pay as amortization in the new situation depends on the new interest rate. This can be checked and calculated here.

The interest rates constantly change and therefore, to finish our analysis, we're going to work with two possible situations:
Example A: interest rate: 5%; the monthly amortization of the new loan during 19 years is 689.73 EUR.

Example B: interest rate: 6.10%; the monthly amortization of the new loan during 19 years is 749.28 EUR.

Conclusion: As the situation in example B is similar to the present loan, it's not worth troubling about refinancing it. On the other hand is the monthly advantage in example A (748.51-689.73=) 58.78 EUR what gives you a total advantage of 13.401,84 EUR!

Practical

If you conclude that the refinancing of your loan is worth doing, you can always ask a detailed offer for the amount needed.
In the offer you will immediately see how much the new credit report fees, amortization, etc are and how you can proceed with us.

Some remarks:

A mortgage loan has to be considered in complete years (so not 19 years and two months). (We recommend you to take the amount on the next complete year).
If your old loan was a ARM (Adjustable-rate mortgage) on 5 years you will have to compare it with the present 5-5-5 rate, otherwise you are not comparing the same things. If you would proceed afterwards you can always choose another variability e.g. a fixed-rate mortgage.
You can also ask another amount in the new loan, either lower or higher, if you for example want to do some rebuilding (without having to take a second mortgage which is more expensive).

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