You took out a loan to finance your property purchase several years ago and an unexpected cash inflow or the sale of your home allows you to consider settling the outstanding capital of your home loan before the date provided for in the contract. You have the full right to repay, in whole or in part, a loan in advance. Better to know the cost of this approach.
Please note your contract may however prohibit early repayment of an amount equal to or less than 10% of the initial amount of the loan, except in the case of its balance. But beware, depending on the contractual clauses you do not always have an interest in committing to this process.
Most loan contracts provide for indemnities in the event of early repayment (IRA). Their amount is limited by law. These indemnities may not exceed the equivalent of one semester of interest at the average credit rate, while being capped at 3% of the principal owed or six months of interest at the average credit rate of the principal repaid.
In addition, your contract may stipulate that prepayments less than or equal to 10% of the initial loan amount are prohibited, except for the balance of this loan. If you have taken out a long-term loan, twenty years and beyond, the penalties are generally no longer required beyond a certain number of years.
When taking out your contract, if you think you might be able to repay your loan in advance, try to negotiate the cancellation of the penalties.
When can you be exempt from penalties?
If you took out a loan after July 1, 1999, you will not be liable for compensation if the early repayment is due to the sale of your accommodation in the event of a change of workplace, death or forced cessation of activity of one of the spouses.
If you sell your home to buy another, you will not pay compensation if you transfer your loan to your new acquisition.
The right time to prepay
Before considering early repayment of your credit, weigh the pros and cons. If you balance it when you sell to buy: no problem if your new financing is granted by the same bank. If you are not in this situation, make your accounts.
If you only have a few years of credit left, paying off may not be a good deal, especially if the interest rate is low and you are subject to penalties. In this case, you may have an interest in investing the amount you have, especially if the remuneration is attractive. On the other hand, if there is a long repayment period remaining (longer than the period during which you have already repaid your loan), repayment will prove to be advantageous.
If the amount received cannot cover the full amount of the principal owed, it is possible to opt for a partial reimbursement. You can reduce the monthly payments while keeping the initial repayment period. Another solution: reduce the duration of the credit, by continuing to pay the monthly repayments initially planned. This financial transaction makes it possible to lower the overall cost of the loan, unlike the previous solution.
If you choose to prepay, you must send your request to your bank by registered mail with acknowledgment of receipt one month before the desired date for reimbursement. No need to justify yourself. Upon receipt of your mail, it must send you all the necessary information, including the financial consequences of your approach.
For credits taken out before 2016, the establishment will send you as soon as possible all the figures allowing you to know the amount of the sums to be reimbursed. You may be billed for this statement.