Although the solution of buying back loans is generally considered in order to help borrowers in difficulty, it is also possible to use this kind of operation as a management tool aimed at optimizing one’s budget or even to improve one’s profile. financial during an investment project for example.
Combine your credits to improve your quality of life
Certainly, credits make our lives easier by increasing our consumption capacity and by giving us access to goods that we could not have acquired for cash. However, when they become too numerous, repayments can weigh heavily on a household budget and undermine a cash already well started by the rise in prices and the various consequences of the current crisis. Under these conditions, it is entirely possible to envisage the grouping of all of your outstanding credit (home loans, consumer loans, payment cards, revolving loans) in order to transfer the claim to a single amortizable loan, better spread over time and with a more attractive interest rate. The monthly borrowing burden can then be reduced very significantly, sometimes by more than half, thereby creating a much more comfortable living-room each month.
Buying back loans to optimize your borrower profile
Whether it is buying real estate, doing work or even considering a business plan for example, it is almost always necessary to turn to the banks for financing. However, they have considerably tightened their conditions for granting loans and in particular they require applicants to now have a high borrowing capacity before granting them any financing.
Clearly, borrowers must receive sufficient income so that the loan requested does not put their personal financial situation in jeopardy, which also implies that they must have a cash reserve likely to help them cope to possible life accidents (illness, unemployment, etc.). Thanks to a loan buy-back, it is possible to improve your borrower profile by eliminating arrears of overdrafts, debts and other revolving credits from your charges. We then arrive in a few months at a situation which inspires more confidence in the banker, all the more so if the cash thus freed up made it possible to constitute a personal contribution, a condition now essential to obtain a loan.
Home finance is often set to run for thirty years or more. A lot can change during this period, both privately and professionally. If living conditions change, you may have to sell your home. Reasons could be, for example, a separation from the partner or a move to another city. The question now is whether you are allowed to sell your home despite a loan. Generally this is not a problem. By selling the house you take in money and can therefore repay the loan. It is important to know, however, that you should consider prepayment penalty in your calculation. You should therefore consider a few points when selling a house despite a land charge, so that you do not have any difficulties.
If you sell a house despite a loan, you will have to pay a prepayment penalty
If you sell your house even though you are still paying monthly installments, you will extraordinarily terminate your current loan. This is possible, but most banks require prepayment penalties. This is a kind of compensation. The bank has calculated the interest from the contract. This income will be lost due to the early termination. Before you cancel the contract, you should first have the exact repayment amount calculated. You can find out how to calculate the prepayment penalty here. Nevertheless, it can be worthwhile to have the calculation checked by a consumer advice center.
Can you avoid prepayment penalty when selling a house?
The prepayment penalty is an item that you do not necessarily have to pay. There are two ways you don’t have to pay a prepayment penalty when you sell a house:
- Property exchange / deposit exchange: Suppose you sell your house because you have to move for professional reasons. At the new place of work, you buy a new house and have to take out a loan again. However, the new house must have a property value similar to that of the previous house. The new house then serves as security for the bank again. You simply exchange the objects with each other. In this case, you can simply transfer the loan to the new property. For this you need an appointment with the notary. This deletes the old property from the land register and enters the new house.
- Exchange of debtors: If you don’t want to buy a new property (for now), you should speak to the new owner of your house. This may simply take over the loan agreement. This is only possible if the bank agrees. It is also important that nothing changes in the contract terms. So the bank and the buyer have to agree. With these methods, you do not pay a prepayment penalty for selling a house despite a loan.
Rent the house instead of selling it
If you carry out a house sale despite a mortgage and you cannot use any of the options mentioned, you will have to pay the prepayment penalty. If the local rents are correspondingly high, there is another option. You are looking for a tenant for your house. Make sure that the expected rent covers the loan costs as far as possible. It is optimal if the rent is a little higher. Then you still have money for repair work and possibly a caretaker service that takes care of the property. You do not need the approval of your bank for this, nor do you have to pay notary fees. The disadvantage is that you, as the landlord, are busy with your house, even if you delegate a lot of work.
Old tenants move out, you have to find a replacement immediately, otherwise you will have double costs. Unfortunately, it often happens that tenants do not pay the costs. In this case, only an eviction suit will help. But that does not have to be the case and if you look at the prospect’s credit bureau entry beforehand, you are on the safe side. This is an alternative to selling a home despite credit that is worth considering.