What the law says ?
The Consumer Code (L312-21, L312-22, L312-23) allows a borrower to repay a mortgage in full or in part.
The bank can not oppose it but has the possibility to apply prepayment penalties and set a minimum amount if you partially repay your loan.
Note that the amount of compensation applied must be included in the loan agreement.
These expenses generally correspond to six months of interest without being able to exceed 3% of the outstanding capital appearing in the amortization table at the moment of the settlement, in application of articles 1152 of the Civil Code and R312-2 of the Code of the consumption.
The amount retained by the bank must be the amount most favorable to the borrower.
In addition, the minimum value of the amount reimbursed is most often set at 10% of the initial amount of the loan, except for the balance.
Let’s assume that you took out a mortgage loan of 120,000 euros on 1 June 2008 for a period of 20 years at a fixed rate of 4.5%. On October 1, 2011, following a receipt of cash, you decide to allocate the sum of 15,000 euros to the partial refund of your credit.
Calculation based on six months of interest
The bank will therefore apply the rule of calculating partial repayment penalties set in the mortgage loan agreement, ie six months of interest:
|€ 15,000 X 4.5% X 6/12 = 337.50|
Calculation of the fee limit
In accordance with article R312-23 of the Consumer Code, compensation is capped at 3% of the amount reimbursed:
|€ 15,000 X 3% = € 450|
In this case, the penalty is less than the ceiling set by the Act. The bank will therefore retain € 337.50 to the borrower.
Can we negotiate with the bank?
First of all, it is important to note that banks are increasingly reluctant to grant a fee waiver if the loan is settled early, which does not mean that we should not try to negotiate them.
If the discussions fail, you can try to make a counter-proposal by proposing to your bank to remove the prepayment penalties gradually.
For example, offer 3% for the first 5 years, 1.5% for 5 to 10 years and 0 for the next. On the other hand, know that it is likely that it adds a clause excluding the exemption in case of repurchase to the competition.
If you are considering renegotiating your credit with another organization, consider applying for your current bank. It often happens that, in order to keep its customers, the latter exempts the borrower who renegotiates his credit from the same establishment.
This will allow you to compete and compare your bank’s proposal without the indemnities and that of the competition with the prepayment fees.
All subsidized loans such as the 2012 PTZ or the 1% housing loan can be repaid at any time without any fees.
The cases provided for by the Act
The same applies if you have subscribed your credit after July 1, 1999 and if the prepayment occurs on the occurrence of one of the following cases (Law No. 99-532 of June 25, 1999)
- Job transfer
- Stopping the professional activity
These situations concern either the borrower or his spouse.
Is it profitable to repay an advance loan?
Before opting for the repayment of your mortgage, we advise you to check beforehand if the options of modularity do not offer a more interesting alternative solution, especially to avoid problems in case of plurality of loans (see below) .
Indeed, it is sometimes more profitable to increase the monthly payment of the loan and to invest its capital. This solution obviously depends on the credit rate and the level of return of the proposed investment.
You can do a simulation to see the results in both situations with our comparison tool.
Notify the insurer in case of delegation
If you have group insurance, the bank will directly notify the insurer of the change in the characteristics of the loan. On the other hand, if you have opted for a delegation of insurance, it is up to you to think about informing the company of the modification made.
To change the insurance premium, you will need to provide:
- The new amortization table in case of partial refund
- The bank loan repayment certificate if you pay it in full.
Multiple loan case
If you have several loans to finance your property, know that the bank has the right to allocate the amount to the mortgage that has the lowest rate.
Thus, if you have benefited from a Zero Rate loan, the latter may legally decide to repay the PTZ priority rather than the main loan, which is obviously not at all your interest.
The French Banking Federation (FBF) has however committed to grant the customer the ability to allocate the reimbursement proportionally to different loans, which is a lesser evil. Again, everything is a matter of bargaining power relationships with your bank.