Remortgaging with another lender

When interest rates were at historically low levels, it seemed as though everyone’s talking about remortgaging. But what does this entail and when is it really a good plan? myLIFE has all the answers you need.

Several years ago, Sylvie took out a mortgage. Her income has fallen recently, so she’d like to lower her monthly repayments. But is this possible and desirable when interest rates have risen sharply since she took out her loan? Her friends have suggested remortgaging – either with her existing lender or with another lender. But what does this mean? Is it actually good advice?

How can Sylvie try to reduce her monthly payments and increase her purchasing power?

• By remortgaging with the same lender: she can make an appointment with an adviser at her bank and try to renegotiate the terms of her current loan.
• By remortgaging with another lender: Sylvie can move her mortgage to another banking institution and negotiate a new loan with this provider on terms that are better for her and better suited to her new circumstances.

In theory, if Sylvie does this, she may well lower her monthly repayments or even, if she’s lucky, decrease the total amount she has to repay. However, she will need to carefully consider the associated costs. People generally remortgage because they’re facing financial difficulties, looking to finance new projects, or hoping to take advantage of new market conditions, such as a sharp drop in interest rates. The latter is not impossible, although it is highly unlikely in 2023. Given the current situation and the rise in interest rates since mid-2022, it is unrealistic to expect better terms. It’s a fact that credit has become much more expensive. However, it is possible to review other elements, such as the loan term. However, this will also have an impact on the other elements of the loan.

What happens when you remortgage with the same lender?

Remortgaging with the same lender means reviewing the repayment terms of your loan with your bank. Until 2022, the person applying for a renegotiation wanted to align themselves with market rates and thus obtain more attractive borrowing conditions than those initially obtained. This allowed them to either:

• • reduce their monthly repayments and so increase their purchasing power
  • reduce the total amount they have to repay

The advantage of remortgaging with the same lender was that you may be able to lower the cost of your loan without having to change bank. Today, one reason for wanting to renegotiate is the imperative need to lower the monthly repayments, which means increasing the term. Whatever the case, then as now, there are costs to pay when renegotiating a loan, including administration fees and maybe even an early repayment fee. Make sure you do your sums before signing on the dotted line!

In absolute terms, and irrespective of the current conditions, for remortgaging with the same lender to be beneficial, it’s best to do it in the first few years of the loan term, since this is when you pay most interest to the bank.

Bear in mind that the bank has every right to reject Sylvie’s request because it has made a commitment to uphold the terms of the loan agreement. The outcome of the negotiation will depend on the relationship Sylvie has with her adviser, her financial situation, the context of her request and even how long she has been a client of the bank.

The bank has every right to reject a remortgage request. The outcome will depend on the relationship between the client and the adviser, the client’s financial situation, how long they have been a bank client and the context of the request.

If the bank turns down the request or if it does not sufficiently meet the needs that justified it, Sylvie can still talk to her adviser to try to find a suitable halfway house.

How does remortgaging with another lender work?

If her request to remortgage with her current lender is turned down, Sylvie can reach out to another banking institution to see whether she can remortgage with them. This entails having her old loan paid off by another institution, in return for taking out a new loan on terms that are better suited to Sylvie’s current circumstances.

In general, the advantage of switching to another bank is the opportunity to benefit from a potentially more competitive interest rate and save money as a result. In the current climate, this is highly unlikely. Sylvie may be able to change other aspects of her loan, too, such as the loan term or the monthly repayment amount.

Here too, all of these changes will come at a cost. Sylvie will have to pay more application fees, potentially take out another insurance policy, pay mortgage release fees to a notary and – if necessary – pay early repayment compensation and/or administration fees to her old bank.

It’s absolutely vital to take all of the costs associated with remortgaging with another lender into account to determine whether the new terms are better than your current terms.

For remortgaging with another lender to be profitable, the terms offered by the new institution must actually be better, be it in terms of a lower interest rate or if Sylvie’s situation must require a revision of certain criteria (lower monthly repayments), even if this means having less advantageous overall conditions. It’s absolutely vital for Sylvie to take all of the costs associated with remortgaging with another lender into account to ensure that the new offer actually meets her needs. This will probably mean accepting that the cost associated with remortgaging are worth bearing to access new terms such as lower monthly payments (in exchange for a longer repayment period).

N.B.: Sylvie will have to persuade the new financial institution to allow her to remortgage with them. Just like for a standard mortgage, she will have to complete a new application, prove her income, provide supporting documents, open a new account, etc.

Sylvie is now aware of some of the options open to her. She can make an appointment with her banker, who will run simulations to guide her to the solution that best meets her needs.

Important: another option is loan consolidation. Banks will only go down this route in exceptional circumstances, when the client’s economic and financial situation means that this is the only option. However, lending bodies (other than banks) offer this type of solution for those facing financial hardship. Be careful, though, and make sure you check that such institutions are genuine and that the terms they’re offering you are real! If you can reduce your monthly payments by consolidating your loan, this will almost always mean spreading repayments over a longer period and accepting a higher interest rate. And this will make the total cost of your loan considerably higher! If the process is not carried out properly, there is a real risk of falling into over-indebtedness.