With interest rates at rock bottom, refinancing your mortgage could be a great way to save money. But there are rules to follow and precautions to take.
Renegotiating your mortgage with your own bank or switching your mortgage to another financial institution in the current low interest rate environment can be a savings opportunity for many Portuguese families. And this is much more than just lowering the famous spread. There are other costs inherent in financing that can be reduced. But there are rules to follow and precautions to take. Today we explain everything you need to know about renegotiating your mortgage.
What you can and cannot renegotiate
Renegotiating your mortgage is an interesting opportunity for some families to obtain better conditions than they currently have, as indicated by Doutor Finanças in this article prepared for idealista/news.
Regardless of the reason, the truth is that there is a strong possibility that you will get better terms by transferring your loan. However, this transfer may mean that you will have to make an amendment to the existing deed. Therefore, first of all, you should know under what conditions you can or cannot renegotiate with your bank or even with a competing entity.
In this article, we present what you need to know before renegotiating your mortgage, what you can and cannot renegotiate with banks, and whether transferring your mortgage is worthwhile.
Renegotiating your mortgage: what is it?
Renegotiating your mortgage is not always an easy task on your own, but it is possible. First, however, you should be aware that everything is easier when you entrust this work to specialized professionals.
There are many specialists you can hire to renegotiate your loan with another bank, but the best option is always to hire someone who will not charge you commissions for this type of service.
Secondly, it is important to know that, as a rule, competition can get you better deals. This is because many loans were taken out during the crisis, and others at times when products had higher costs.
However, economic conditions have improved, money has become cheaper, and, as a result, mortgage loans have also become more competitive. Therefore, if you took out a mortgage loan during the crisis, you are likely to get better terms from another bank.
Finally, it is important to be aware that renegotiating your mortgage is much more than just lowering the famous spread. Therefore, if you want to transfer or renegotiate your mortgage, don't just look at the spread. In addition to this, there are other costs inherent to your loan that weigh on your installment, having a major impact on your family budget.
What you can renegotiate in your mortgage
There are several renegotiation options when the goal is to lower the costs related to your mortgage. The following options are part of the renegotiation possibilities:
- Spread: Those with high spreads should always try to renegotiate them, as a good spread is currently between 1% and 1.5% at most.
- Loan term: You can always save on interest in the long term by reducing the number of years of your loan. If you have a high monthly payment, you can renegotiate the term by increasing the number of years of your loan. However, in the long run and ultimately, you will pay a higher amount due to the increase in interest.
- Life Insurance and Multi-risk Insurance: These are types of insurance required by banks in order to take out a mortgage. However, you are not legally obliged to accept the insurance offered by your bank. You should always look for the best conditions, as these also represent a significant portion of your mortgage expenses.
- Credit Card: It is very common for banks to encourage you to sign up for a credit card. The conditions of use vary from institution to institution and can also make your loan more expensive. If you are going to renegotiate the terms of your mortgage, and if you are not satisfied, you should also take the opportunity to check the terms of your credit card.
- Savings account: In addition to the above products, many banks may encourage you to open a savings account in order to receive a bonus on your credit spread. Although this may not have any associated costs, it is sometimes possible to change the obligation to have this account by transferring your mortgage to another institution.
- Financial products: Financial products that were subscribed to improve your credit spread may also represent an additional strain on your budget. It is likely that subscribing to these products is no longer necessary. Therefore, you can always renegotiate them if you deem it convenient.
What you cannot negotiate in your mortgage
Although there are many conditions that can be negotiated, there are others that are almost impossible to change. This short list includes:
- Salary account: Direct deposit of your salary is a mandatory requirement at most Portuguese banks. Therefore, it is very difficult not to have this account linked to your mortgage.
- Direct debits: Although they are not mandatory, most banks are unlikely to allow you to have no direct debits associated with your account. In these situations, what you can do is try to renegotiate the number of direct debits you have associated with your account. However, remember that direct debits have no associated costs, so they should not be your main focus.
The importance of analyzing the competition
By being informed of the prices charged by the competition, and the products and services you do or do not have to contract with other banks, you have greater room for maneuver when negotiating with your bank.
Therefore, before renegotiating your mortgage, you should request several proposals and run several simulations.
Remember that you always have the option of transferring your mortgage to another bank. If the bank is not willing to renegotiate the terms you want, you can always switch and save not only on the spread, but also on some products and services.
Details you should know when renegotiating your mortgage
Customers who have never renegotiated a loan may feel a little confused by the amount of information they receive. Often, the information provided seems somewhat contradictory, as it may appear that by renegotiating, they are only losing advantages, when in fact they are not.
If, for example, you want to reduce the cost of your insurance by transferring it to another company, the bank may or may not increase your spread. Customers who are not familiar with all the pros and cons in this area may think that an increase in the spread means they will end up paying more instead of saving money.
However, this does not have to be true. An increase in the spread, if not significant, does not mean that you cannot still save money with the new conditions you have found. If you take out compulsory insurance with a competitor that offers much more affordable prices, you will most likely be able to save money even with the increase in your spread.
Furthermore, if you can remove some products that have sporadic charges or obligations, even better. Not all banks require you to take out multiple financial products in order to offer the best conditions.
Note: It may seem like a somewhat complex task, but in the end, this extra effort can save you thousands of euros. And, in the case of mortgage transfers, you can count on the help of specialized professionals at no cost.
Mortgage transfer: what is it?
A mortgage transfer involves transferring your mortgage from your current bank to another bank that offers better conditions for your situation and, ultimately, reduces your monthly payments. This transfer can result in savings of thousands of euros.
Is it better to renegotiate with the bank or transfer to another?
It all depends on the current conditions of your mortgage. However, in most cases, when you transfer your mortgage, you end up getting better conditions. These benefits can come with a lower spread, savings on the monthly or annual cost of compulsory insurance, and even the removal of financial products.
In addition to transferring your mortgage, there is another savings solution for those who have this option. This savings involves early repayment of the mortgage, however, the best solution is not the same in all cases.
Source: idelaistanew