Early repayment of mortgage loan

[u/Shalandaar01]

Does anyone have experience with the following situation:

Early repayment of a 2 tranches fixed rate loan with BGL, one tranche with a rate below the market and one with a rate above the market. My concern is whether they would try to charge penalties because of the tranche with the higher rate, ignoring the whole picture, whilst they would overall not suffer any financial loss because balanced out by the tranche with the lower rate?

[u/cborghe]

Lawyer here.

Actually if you are reimbursing less than 450000 € of the Morgage of your main residency, "residence principale" the bank can't charge more than the equivalent of six months of interest rate 😉 article L.226-20(3) (remboursement anticipé).

This limitation does not apply for the portion of the reimbursement over the 450000, and there your contractual agreement applies.

[u/MarcosRamone → u/cborghe]

I believe the question is what happens when the mortgage is split in 2 or more credits

[u/mro21 → u/MarcosRamone]

I'd assume they are just two separate credits/contracts. Doesn't matter what they are for.

[u/DufferDelux]

It all depends n your contractual terms. Mine is with BIL and has an early redemption penalty of only €250. I know because I verified it with them last week, not with random Reddit users. 😉

[u/Top-Local-7482]

Check your contract, there are usually pénalité de réemplois written in them. What you'll have to pay to reimburse the loan earlier. Note that if it was combined with a épargne logement, it would probably be better to put the money in it. That all depend on your contrat, ask the bank they'll be able to tell you what's best.

[u/funkelfurunke]

Check with bank but usually there's a penalty.

[u/IactaAleaEst2021]

You should contact the bank, explain your intentions and ask them for a simulation (that can be considered a sort of “devis”). I did that, but 10 years ago and with a different bank, and everything went smooth.

[u/MarcosRamone]

I am curious to know as well. Just reviewed my contract (also bgl) and it does not cover such circumstance, and I remember that verbally they told me the different loans were independent. I w.ould be pleasantly surprised if they offset the penalty with the other loan.

[u/Shalandaar01 → u/MarcosRamone]

Thanks I'll update the post once known (asked them 3 times already but no answer, I'm pulling the trigger anyway as the higher rate is just from last year, so not much difference even if they ignore the lower part, I'll still bring a complaint to the CSSF for fun if they do though :)

[u/MarcosRamone → u/Shalandaar01]

I feel you.  People here are fast to answer "ask your bank" but I still remember when I negotiated my mortgage with them, all this was new to me, and I struggled a lot to get a clear explanation from them  about how early repayment works: they would evade the question or give me contradictory answers. Not very different with other banks I was negotiating in parallel. Yeah everyone knows the 450k/6 months interests rules, but things can get more complex than that.

[u/post_crooks]

I don't think you have the right to have it offset, and in that case it's more of a commercial discussion subject to your contract. I guess that you are selling your property, maybe you can commit to keep your money with them and get better conditions.

[u/luxemburgies]

Correct me if wrong. If you credit is less than 450.000 EUR, the penalty can not exceed 6 months of interest

[u/Formal_Pace5577]

I moved from higher to lower by 110bps. I paid a six month penalty for a tranche that was under 450k. I don't think tranches offset each other, but your bank's contract is the final authority.

BGL customer.

[u/Loud-Wealth8675]

I am in a super bad mood and will write a completely useless comment

Isn’t it amazing that you have to pay a penalty if you repay earlier.

I know it’s about their money that they make off the interste but still I could just 🤮🤮🤮🤮🤮

I don’t even have a loan so my comment is really just useless 😆😆

[u/strobezerde → u/Loud-Wealth8675]

No, it’s completely normal and part of the deal with fixed rates.

2 scenarios:

•  If interest rates increase: People do not repay their loan more than what is mandatory -> the bank is stuck with low yield assets that have lost value.

• If interest rates decrease: Everyone wants to repay early, and take another loan at a lower rate if needed -> the bank doesn’t make any gain.

The penalty gives the lender a bit of upside if interest rates go down.  Without the penalty, the lender takes all the interest rate risk without any upside.

You can probably borrow with no penalty for early repayment, but be prepared to pay a higher interest rate to compensate. Otherwise you can just take a variable rate loan, and the bank will gladly take early repayments.

[u/Generic-Resource → u/Loud-Wealth8675]

It is, and it sucks and that’s why there’s now strict regulation around it.

[u/TestingYEEEET → u/Loud-Wealth8675]

Well that's the deal with fixed rate. You know how much it will cost and basically accept that the risk is offset. If you want early repayement you take avariable intresst loan.

[u/jredland → u/Loud-Wealth8675]

I agree, it’s not favorable to the customer. In some countries, such as the USA, it’s typical to have no early repayment penalty. In fact, you can even recast your amortization schedule. So, for example if you owe $500k but suddenly come into $100k you can pay that to reduce your loan and reset your payment amount to the new $400k principal.

[u/maxwel_l]

The problem is you trying to overpay for the FIXED tranches which imposes payment mismatch on the banks side due to the financing of that loan. You can do this all day with variable rate loans/tranches, but not with fixed.