March 24, 2023

You have acquired a residence and you have hired a home loan whose repayment is spread over several, even decades. Now, you have the sum borrowed, and you wish to undertake a mortgage prepayment. Here is some useful information on how to repay a mortgage sooner than expected. Also, we show the amount of penalties in the event of early repayment. Do you have any interest in repaying your mortgage early? Keep reading to find out more.

Repaying Your Real Estate Loan

What is the prepayment home loan?

When a real estate loan is in progress, the principle of early repayment consists of payment of the remaining monthly installments before the end of the contract. This type of financial transaction often occurs when an owner decides to resell his home, or even following an unexpected large inflow of money or when buying credit from another banking establishment.

The lender cannot object to repaying a home loan early.

However, article L313-47 of the Consumer Code specifies that:

the loan agreement can prohibit reimbursements equal to or less than 10% the original amount of the loan, unless it is the balance for which you are indebted.

You have the choice between an early loan repayment total or partial.
The total refund corresponds to the payment of theentire capital remaining, while the partial reimbursement relates to part of the deadlines.

Partial repayment of the mortgage

If the amount you have does not allow you to make a full prepayment of the home loan, it is possible to make a partial prepayment of your credit. This action changes your original loan schedule. You can choose between two options:

  • the reduction in the amount of monthly payments, while maintaining the term of the loan; This eventuality offers the possibility of alleviating the monthly cost of reimbursement, but not the total cost;
  • the amount of the monthly payments remains the samemaking it possible to reduce the duration of the loan and therefore its total cost.

What are the mortgage prepayment penalties?

If he is advantageous for the borrower to repay the mortgage in advance, on the contrary, it constitutes a loss of earnings for the lender. Therefore, some reimbursement allowances anticipated are requested; as to amount, this is framed by the Consumer Code. However, the lending institution may claim to collect these indemnities only if a clause stipulates it in the credit agreement.
Indeed, when subscribing to the loan contract, the home loan prepayment fees can be negotiated reduced or even eliminated.

In the case where you have to pay early repayment indemnities, the fee amount can not exceed a certain limit, that your loan is at fixed rate or at floating rate.

L’article R313-25 of the Consumer Code indicates that the early repayment indemnity (IRA) cannot exceed:

  • the semester worth (6 months) of interest due on the capital repaid in advance;
  • 3% of remaining capital when making the prepayment home loan.

Note that in the case of a variable rate loan, the indemnity may be subject to an increase in compensatory interest, authorizing the credit institution to apply the expected average rate when granting the mortgage.

Nevertheless, thearticle L313-48 of the Consumer Code lists three causes for IRA exemption, even if your contract imposes repayment penalties.

The exemption from payment of penalties is applicable when the contract has been entered into after July 1, 1999 and that this prepayment occurs after the sale of your property for the reasons below :

  • the change of place of work of the borrower or his spouse;
  • the forced cessation of the professional activity of the borrower or his spouse;
  • the borrower or his/her spouse is deceased.

How to make a request for early repayment of a home loan?

Real Estate Loan Repayment Letter

You have to contact your credit institution, preferably in writing, to inform him of your wish to settle your loan in advance of the capital remaining due in whole or in part, specifying the amount of the reimbursement. Sample letter templates are available on many sites.

Your banker must provide you with a free estimate compensation to be paid in the event of prepaymentthe document that will be given to you is called prepayment statement.

If your credit has been taken out before July 1, 2016, the settlement document can be invoiced by the financial institution. The statement received must mention the amount of capital remaining due as well as the amount of early repayment indemnities.

What is the advantage of anticipating the repayment of a mortgage?

The prepayment represents a profitable strategy, especially if there are still several deadlines to be met. It therefore seems interesting to undertake this monetary operation as soon as possible. Indeed, it is unwise, even disadvantageous, to make a request for early repayment when the contract comes to an end, since the interest to be repaid has amply decreased. Because, the advantage of an early repayment remains above all financial.

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