Reviewing a mortgage loan often happens in an environment of falling interest rates. Anyone who has a loan with a high fixed interest rate wants to reduce their interest costs by obtaining a lower interest rate from their bank. When a loan is revised, the bank usually closes the existing agreement and opens a new credit agreement. Such a new loan results in additional costs, and Federal Minister of Economy Pierre-Yves Dermagne (PS) wants to do something about this.
From now on, various adjustments to your credit agreement, such as revising the interest rate, revising the term or suspending the repayment of the capital, may no longer lead to a new credit agreement. ‘Such changes at your own bank can be done with a simple change to the contract. In those cases, the bank cannot enforce a new credit agreement,” says Dermagne. We list the consequences of the measure.
What changes if you refinance with your own bank?
Anyone who wants to refinance his loan from his own bank today will pay administration costs on the one hand and a reinvestment fee on the other. The administration costs may amount to a maximum of 50 percent of the initial administration costs of the loan. Because a ceiling of 350 euros applies to file costs, the bank may charge a maximum of 175 euros in file costs for a refinancing.
The reinvestment fee, which is linked to a new credit agreement, is legally limited to three months’ interest on the portion still to be repaid. In the case of a refinancing, this amounts to the outstanding capital of the loan. For example, anyone who refinances a loan with a fixed interest rate of 4 percent where the outstanding capital is still 250,000 euros will have to pay a reinvestment fee of 2,500 euros (250,000 x 4% x 3/12).
When refinancing with your own bank, the bank can now only charge administration costs, which amount to a maximum of 175 euros.
Pierre-Yves Dermagne (PS)
Federal Minister of Economy
It is precisely that reinvestment fee that will disappear as a result of Dermagne’s measure because there is no longer a new credit agreement. “From now on, the bank can only charge administration costs, which amount to a maximum of 175 euros,” Dermagne’s office said.
What if you refinance with another bank?
Nothing changes for a refinancing with another bank. This remains a new credit agreement. This means that the customer will have to pay both file costs and a reinvestment fee. It also remains the case that the mortgage must be registered with the new bank, which means that the customer also has to pay notary costs.
Will banks pass on the costs in a different way?
Anyone who turns to their own bank today for a refinancing must count on some goodwill. The bank knows that you will have to pay additional notary costs if you refinance your loan with a competitor. This means that your own bank often does not have to offer a rock-bottom interest rate when refinancing to keep you on board. Dermagne’s measure makes the difference in costs between refinancing with your own bank and that with another bank even greater. Refinancing with your own bank will now cost a maximum of 175 euros, while with another bank you will also have to pay the reinvestment fee and notary costs.
“Borrowers must be able to allow competition between banks to play out and see whether they have an interest in changing banks,” the Dermagne cabinet said. ‘If banks do not offer the best rates, they will lose customers who can obtain a lower interest rate over a term of 10, 15 or 20 years and are willing to pay higher costs for it.’
As a sector, we have no idea how lenders will deal with this.
Isabelle Marchand
Banking Federation Febelfin
The banking federation Febelfin points out that a request to adjust the interest rate represents a ‘break’ in the contractual agreements entered into in the long term. ‘That is also the reason why the lender asks for compensation in such a case. As a sector, we have no idea how lenders will deal with it now that the option to request a reinvestment fee has completely disappeared,” says spokesperson Isabelle Marchand. The banking federation emphasizes that the law does not oblige the bank to grant a refinancing. ‘The demand for any adjustment must come from the consumer. The lender always has the right to refuse the application.’
When will the measure take effect?
An agreement has been reached within the government on the measure. “The amendment to the Economic Law Code will be voted on after discussion in the House of Representatives Economics Committee at the beginning of May,” Dermagne’s cabinet said.
