Photo: PexelsIn short
- Minimum rate gap: 0.7 to 1 point
- Loan balance: at least half of the initial capital
- Remaining term: 10 years minimum
- Fees to anticipate: 3 to 5 percent of remaining capital
Credit refinancing consists of having your existing loan bought back by another bank to benefit from better conditions. Precise calculation is required to validate profitability.
The 3 profitability conditions
For refinancing to be advantageous, three elements combine:
- Rate gap of at least 0.7 to 1 point
- Remaining capital greater than half the initial borrowed capital
- Remaining term of at least 10 years
The earlier you repay in the life of the loan, the greater the refinancing gain. Conversely, refinancing at the end of the loan life is rarely profitable.
Fees to anticipate
| Fee | Approximate amount |
|---|---|
| Early repayment penalty | 6 months of interest capped at 3 percent of remaining capital |
| New loan application fees | 500 to 1,500 euros |
| Guarantee (surety or mortgage) | 1 to 2 percent of capital |
| Brokerage (optional) | 1 percent of capital |
Gain calculation method
The calculation is simple:
- Gross gain = sum of saved monthly payments
- Net gain = gross gain minus total fees
A broker or the bank may present an impressive gross gain without detailing the fees. Always ask for the APR of the new loan and compare with the current one.
Alternatives to refinancing
- Renegotiation in the current bank: faster, less fees but smaller margin
- Payment modulation: without changing loan, temporarily reduce or increase payments
- Partial early repayment: pay capital to reduce payments or term
Refinancing is only profitable on long loans with a significant rate gap. Always compare APRs and include all fees in the calculation.