Faced with rising inflation and rising interest rates, more and more savers are forced to consider not only the variable but also the fixed costs and therefore examine the most advantageous offer, also in terms of the mortgage, taking into account the transition between the options for further mortgages save. Especially those who have an adjustable rate loan on their home and are seeing the monthly rate steadily increasing from early 2022.
What is subrogation?
Mortgage transfer gives you the opportunity to transfer your existing mortgage from one bank to another bank. The transmission takes place in a way completely free, without notary fees or to the bank that must be abandoned.
When transferring, it is possible to change the type of interest rate, the remaining term of the loan and the type of principal repayment. You can also oblige the bank to switch from variable to fixed if it is a primary home, you have never defaulted on an installment and you have an ISEE of less than 35,000 euros.
However, it should be borne in mind that even if this transition were possible, the fixed interest rate would in any case currently be above 4%. Subrogation can therefore provide short-term relief, but it is prudent to carefully weigh the impact of long-term interest rates, both fixed and floating, which are currently far more severe than those observed in the recent past.
In general, the mortgage transition is convenient for those who have taken out mortgages at even higher interest rates than the current ones and when interest rates fall Therefore, it is a decision to postpone it until at least 2024 if possible.
To find out if this is practical, a simple calculation must be performed: the installments on the old mortgage must be multiplied by the remaining term, and the installments on the new mortgage must be multiplied by the term of the recourse loan. If the first value is higher than the second, the subrogation makes sense.
If it is not possible to assign a mortgage
In the positive event that a decision is made to proceed with the loan assignment application, the bank that originally granted the loan cannot refuse it, but the bank to which the loan is to be transferred may refuse the request in some cases. For this reason, it is advisable to check a few elements before rejecting the subrogation. In particular, the borrower who wants to pay off the old mortgage should consider the following cases:
- The amount of the loan is less than 50,000 euros. The reason lies in the fact that the balance is very low, therefore the interest rates are lower and consequently the bank may not consider the deal profitable enough;
- The income situation of the borrower changed in a negative way. This situation can occur if the borrower has changed jobs, but receives a lower salary than the previous one, or if there are new expenses or debts. The motivation is therefore due to a greater risk Insolvency;
- Balance of previous installments. The borrower wishing to relinquish the loan could see the application rejected by the new bank if they have prior registration overdue installments;
- depreciation of the property so that it no longer constitutes a sufficient guarantee for the Bank;
- short loan term. Closely related to the first point, if the loan expiration is close to repayment, the new bank may not consider the business profitable.
- Advanced age of the applicant: Some banks or financial institutions may find the assignment of the loan insufficient for applicants who are over a certain age.
- Use of improper funds: This is the case when the applicant has used unlawful funds, for example from illegal activities or tax evasion. In this case, the bank or financial institution could deem the applicant unreliable and reject the loan transfer request.
What to do if the right to a loan transfer is excluded?
It’s also important to remember that the options available depend on the terms of the current mortgage and the financial situation of the mortgagee. Before making a decision, it is advisable to carefully review all the options available and what the financial and tax consequences of each choice might be.
Undoubtedly, the first thing to do is try to improve your creditworthiness: for example, you can try to pay off outstanding debts, avoid late payments on mortgages and other loans, avoid opening new loans or credit cards. In fact, all of these operations affect the rate/earnings ratio and could have a negative impact on the assessment of a new bank that needs to grant the subrogation.
Another way to evaluate is to renegotiate the current loan with the current bank to request a debt restructuring or rate cut.
When evaluating the alternatives, it is certainly very important to demand, where possible, the support of your trusted financial advisor, who not only help to understand the reasons for non-admission, but can also provide professional help with debt management and identifying the best options available.