Statistics show that one out of two loans does not come to an end. Indeed, the reasons for stopping a credit in progress are many, ranging from the resale of the property (following a divorce, a transfer, the arrival of a new child …) to the repurchase of credit by a competing bank, through the arrival of significant cash (inheritance, donation, resale of real estate …). But is early repayment still financially worthwhile?
A right granted to every borrower
The repayment of an advance loan is a right provided by Article L312-21 of the Consumer Code: ” the borrower can always, on his initiative, prepay, in part or in full (the credit). The loan agreement may prohibit repayments equal to or less than 10% of the original loan amount, except for its balance. The lender is entitled to demand compensation fixed according to a scale determined by decree. “
Attention, no financial compensation is claimed for mortgages subscribed since June 30, 1999, provided that the anticipated sale of the property occurs in three specific cases: the sale of the property following a change in the place of business activity the borrower or his spouse, the (forced) loss of employment or the death of the borrower or his spouse
The prepayment allowance is capped by law
The compensation in case of early repayment (IRA) can not exceed one semester of interest on the capital repaid at the average credit rate or exceed 3% of the outstanding capital (CRD) before repayment (article 12 of the law). of July 13, 1979). This 3% ceiling is only applicable when the higher credit rate is 6%, which has not been the case for a long time. Even limited, this penalty can be a large sum of money to regain his freedom, especially if there are many years of credit to repay.
Example 1 : If there is € 50,000 left on a 5% loan, the penalty will be € 1250 (€ 50,000 x 2.5%), the equivalent of the price of a move.
Example 2 : € 200,000 borrowed over a period of 20 years at 4.6% (excluding insurance), then fully repaid after 7 years, showing a remaining capital of € 149,626. The penalty calculated on 6 months of interest will amount to € 3,441.40
A point to negotiate before signing the loan
The early repayment indemnity is not inevitable. If you know that there is a good chance that you will not finish your credit, discount it. It will depend on your profile and the financial institution involved. For long-term loans (20 years and over), these penalties are usually waived beyond a certain number of years (for example, 15 years or more). In case of agreement of your banker to reduce this indemnity, see to remove it, always put a written record of his decision. Otherwise, this verbal negotiation will not be worth anything!
Warning: the drafting of the terms of payment of compensation sometimes has nuances that must be known to decrypt. Thus, some institutions accept its deletion provided that you subscribe at home the next mortgage. Others, exempt from the payment of the IRA, unless the loan is purchased by a competing bank.
If you go through the services of a real estate broker, the latter will almost always succeed in breaking these penalties in case of resale.
Refund or investment?
The answer to this question is not as clear as it might seem. It must always be analyzed on a case-by-case basis in order to respond to the personal and financial situation of the borrower. Nevertheless, in a purely economic approach, it is possible to decide by comparing the two following hypotheses.
1st hypothesis : with the money you have, you repay your credit early by paying the maximum legal indeminence, then you place each month the equivalent of monthly payments that you used to repay.
Assuming that instead of repaying your credit, you place the corresponding amount of money, and you continue, as before, to repay your loan.
By comparing the capital stock in each case, you can determine the most advantageous option: if, in the first case, the capital obtained is greater, you have interest in repaying your credit; otherwise you have interest in placing your money. The choice of the most relevant option depends on 3 factors: the duration of your credit remaining, its interest rate, and the rate of return (net of tax) that you will get by placing your money.