Life sometimes has surprises in store, and each year many homeowners must resolve to part with their principal residence before they have even finished paying off their mortgage. Whether it is a professional transfer, a separation, a birth or unfortunately a death, there is no shortage of reasons to justify an unexpected move!
Reselling a property before the end of the loan is a common operation, but the terms may vary depending on your specific situation. Depending on the case, you can opt for the classic solution of early repayment of the credit, to take out a bridging loan, or for that, more rarely, of a transfer of the credit to a new property.
Think about the repurchase of balance and keep your property
Do you want to keep your property after a separation, but have to pay the cash payment to your spouse?
Have you thought about grouping credits ?
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Pay off a mortgage early
Banks apply a clear policy, and systematically refuse that a borrower keeps a mortgage for a property which he no longer owns. If you want to sell your main home, you will also have to put an end to your mortgage in one way or another! The generally adopted solution consists in repaying the mortgage in advance with the product resulting from the sale. Following the signing of the authentic deed of sale and the transfer of funds by the new purchaser, it is up to the notary to return the capital remaining due on the credit to the bank.
Are there any costs to be expected for early repayment?
Note that the remaining principal due will be increased by the early repayment indemnities (IRA), which are intended to compensate the lending bank for the interest that you will no longer have to pay to it. These indemnities amount either to six months of interest at the average rate of credit, or to 3% of the principal remaining due – the lesser of these two amounts. “It will therefore be all the more expensive to repay a loan in advance as this loan is recent.
If your loan was contracted after 1 July 1999, after all, you will not be liable for any prepayment compensation in some cases, and particularly when the sale of the unit follows a death of a spouse, a job transfer or job loss.
Important: it is always possible to negotiate with banking establishments when making a mortgage. It has therefore become common to ask to be exempt from prepayment penalties if you sell your house or apartment. This exemption must be expressly stipulated in the credit agreement. On the other hand, it is rarer to manage to obtain an exemption from indemnities of early repayment in the event that you redeem your credit by another bank. In any case, think about it during your next purchase and don’t hesitate to speak to your advisor. You can only be a winner!
Home loan transfer to finance your new home
The transfer of mortgage, as the name suggests, implies that you keep your old loan to finance all or part of your new housing.
Quite widespread across the Atlantic, this practice remains rare in France insofar as it is little known and must be expressly provided for in the initial contract.
A transferred loan retains its main characteristics, such as its interest rate, which of course represents a considerable advantage compared to taking out a new loan if the rates have risen in the meantime. The solution is all the more interesting if you had benefited at the time from a zero rate loan which you could no longer claim today.
Good to know
As the interest rates are currently at a very low level, our experts recommend that you require the lending institution to clearly mention “loan transfer” on the contract so that these rates remain applicable for your next acquisition.
Please note: the transfer can only be made if you remain a customer of the same establishment, it is not a transfer of loan from one bank to another.
Likewise, the costs of changing domicile are much lower with a credit transfer. You will hardly have more than administrative fees to settle, without any prepayment indemnity. Or potential savings of several thousand euros!
However, as interest rates are particularly low at present, it is likely that your old contract was concluded with superior conditions. It is therefore necessary to carry out simulations in order to compare the different possibilities taking into account all these elements: interest rate, early repayment indemnities, application fees, etc.
For the credit to be “transferable”, the amount of the new transaction must be greater than or equal to the capital remaining due. It is also necessary that the sale of the old home and the purchase of the new take place within a limited period of time – no more than six months as a rule. In case of doubt about the transferability or not of your credit, carefully read your contract and/or request an interview with your advisor.
The bridge loan: selling to finance a new property
Do you intend to remain an owner? The simplest and most secure solution consists in waiting to sell your current property before signing for a new house, even if it is to rent for a few months before moving into your future accommodation. However, a slightly longer than expected sale, an urgent move or an exceptional purchase opportunity may encourage you to seek funds to immediately buy the new property, even before you have found a buyer for the old home. In this situation, you must use a “bridging loan”!
In the context of a bridge loan, the bank grants you a cash advance which generally corresponds to an amount between 60% and 80% of the estimated value of your current property, in order to take into account the possible discount of the accommodation after negotiation. Note also that the amount loaned is associated with a typically higher interest rate than that of a conventional mortgage.
Like a conventional mortgage, the credit organization will generally ask for a guarantee. It can be a mortgage, a lender’s lien, or the surety of an organization.
With this amount, you can immediately acquire your new residence – if necessary by making a contribution or by taking out an additional loan to make the account – and have one year to conclude the sale of the old housing, or even two years at maximum if the bank agrees to extend the bridge loan. The proceeds from the sale, once obtained, will be used primarily to repay the bridging loan.
In most cases, the borrower will repay his bridging loan with a partial deductible. This means that only loan interest and insurance must be paid monthly. The capital will not be reimbursed.
Although more expensive in the end, the main advantage of the partial franchise is to reduce the borrowing burden for owners until the sale of their property. They can thus more easily assume the traditional complementary mortgage, if necessary.
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What if the sale of the property does not cover the entire loan?
At the expiration of the bridging loan, the bank is entitled to demand the immediate and total repayment of the loaned amount. It is therefore necessary to sell the property for a maximum of two years : this is the main constraint of this method of financing. This may encourage you to lower the price beyond what you had planned, and the fear of not being able to repay the entire credit may appear.
The bridging loan has sometimes had a bad reputation. This is essentially the consequence of abuses that occurred in the 2000s: sellers asked real estate agencies to overstate the price of the property on the market. In fact, the amount of the bridging loan being limited to a maximum of 80% of the value of the house or apartment, this technique made it possible to obtain greater funding.
At the same time, the real estate market has subsided and demand has decreased, causing sales difficulties. Borrowers were then no longer able to repay the entire bridge loan taken out: this situation is called negative equity.
Fortunately, these fraudulent techniques are no longer used today. The entire chain was made responsible: sellers, bankers, real estate agents, etc. Thus, the average amount of a bridging loan is 70% of the value of the property, which leaves a comfortable margin to be able to reduce the sale price of the property while still being able to repay the loan.
If despite everything you are unable to repay the bridging loan, it is then necessary to transform it into conventional mortgage with the agreement of your bank, or to repay the remaining amount with your savings.
What about borrower insurance, surety and mortgage?
Whether you have opted for the group contract offered by your bank or for a delegation of insurance, the borrower insurance linked to your old mortgage is extinguished with the latter. When the credit is repaid in advance, do not forget to contact your insurer and provide it with a certificate or receipt from your bank concerning the final repayment of the loan.
When the mortgage was guaranteed by a surety, this latter ends automatically with the prepayment. Remember, in this case, to check whether the surety can be required to reimburse you part of the amount you had to pay at the time. In the event of a credit transfer, the deposit can be kept with the loan but must of course be accompanied by an additional guarantee if you ever need to borrow a little more.
The mortgage or the lender’s privilege is irreversibly linked to a specific property. In the event of the sale of the latter, and whether you have opted for a refund or a transfer, you will therefore have to pay release costs and finance a new guarantee for your next accommodation.