Refinancing your mortgage outside your fixation anniversary is no longer taboo. After a radical cut in interest rates, a group of people who refinance their paybacks have grown beyond their anniversaries. Old mortgages often pay twice as much interest as today’s rates. When is it worthwhile to refinance the mortgage outside the fixation anniversary?
There are high interest rates on older mortgages with longer fixations
Currently, banks offer new mortgages with an interest rate of 1.2% pa. It is not so long ago, when interest rates for fixation for 5 years were almost 3% pa. However, the time has changed and interest rates have fallen radically. They fell more than half.
It is older mortgages that have been fixed for 5 years or more and have a high interest rate and are still far away for people to fix. I searched a few old loan contracts from the first half of 2014.
I found a number of mortgage contracts where the interest was 2.74% pa for 5 years and in some cases more. At that time it was one of the best rates a normal person could get. It is very much today and will remain for 2 years until the fixation ends.
How much you can pay less on a monthly installment at lower interest
At first glance, the difference in interest may seem slight. However, with larger amounts, which is common to mortgages, this will do more than you might expect.
I just put it in numbers just for illustration. I count with a mortgage loan of € 100,000, a repayment period of 30 years, interest on an old mortgage of 2.74% pa, and interest on a new mortgage of 1.49% pa.
- Old mortgage interest 2.74% pa, monthly payment of € 407.71, interest for 5 years € 12,942.
- New mortgage – interest 1.49% pa, monthly payment € 344.64, interest for 5 years € 6,954.
- Difference – interest lower by 1.25% pa, monthly payment by € 63.07, interest payment lower by € 5.988.
The numbers speak clear language. Having a lower interest mortgage can save a lot of money in your wallet. With the new mortgage, I counted on a higher interest rate than the lowest on the market, and for the old mortgage, I counted on the interest that was one of the lowest at that time.
Of course, with old mortgages you can meet with higher interest than 3% pa and new mortgages can be with lower interest than I expected. All the more so, it is worth returning interest or refinancing a mortgage.
When is it worthwhile to refinance the mortgage outside the fixation anniversary?
Now we are mainly talking about numbers and in that case we will be helped by mathematics. The answer to this question is simple.
Refinancing your mortgage outside your fixation anniversary is always worthwhile if you can save on it. If you look at the above example, it is clear that you will save an interesting amount even with a lower mortgage amount.
What can shuffle cards significantly is the premature repayment fees. These, after changing the law last year, are limited to a maximum of 1% of the mortgage principal balance.
If this is included in the refinancing costs, the savings in refinancing your mortgage are significantly reduced.
The competitive struggle of the banks in 2017 created a situation that was not yet there. Some banks have begun to reimburse the prepayment fee. This makes refinancing much cheaper and refinancing your mortgage is almost always worth it.
Below, you’ll find an overview of the banks that are currently reimbursing this fee.
Mortgage refinancing is just one way to reduce interest on an existing mortgage. I will write on the second option.