Renegotiating a French mortgage: fees, IRA, timing

Renegotiation or switching lender: the differences

Sources: service-public.gouv.fr (fact sheet F146); ABE Info Service.

Your bank is not obliged to accept. It can refuse to renegotiate; switching lender then remains an option. Conversely, there is no limit on the number of renegotiations (ABE Info Service).

Early repayment charges (IRA)

The borrower can always repay early, in part or in full (Consumer Code, art. L313-47). Any charge provided for in the agreement “may not exceed the value of six months’ interest on the capital repaid at the average rate of the loan, and may not exceed 3% of the capital outstanding before repayment” (art. R313-25). For a loan with different rates over different periods, it can be increased to secure for the lender the average rate originally provided for.

Worked example. Capital outstanding of €150,000, repaid in full, average loan rate of 3%:

• 6 months’ interest: 150,000 × 3% ÷ 2 = €2,250;
• 3% of the capital outstanding: 150,000 × 3% = €4,500.

The charge cannot exceed the lower of the two amounts, i.e. €2,250.

No IRA if the repayment follows the sale of the home because the borrower or their spouse has changed place of work, because of the forced cessation of their professional activity, or because of a death (art. L313-48; service-public.gouv.fr, fact sheet F1669). No other cost may then be charged (art. L313-49).

Partial repayment. The agreement may prohibit repayments of 10% or less of the original amount, except to clear the loan (service-public.gouv.fr; ABE Info Service). Timing the payment to coincide with an instalment date avoids interim interest (fact sheet F1669).

To combine several loans, see our guide on rachat de crédit (debt consolidation).

Security costs, arrangement fees and working out whether it pays

Costs to expect (ABE Info Service):

• arrangement or amendment fees, charged for assessing and setting up the operation;
• security costs: with a mortgage, the change of rate or term must be registered with the land registry (service de la publicité foncière) by a notaire (notary); when switching lender, there is also the release of the old mortgage and the creation of new security;
• IRA, when switching lender.

The comparison to make. Set the total cost of the current loan over its remaining term (for a fixed monthly payment: monthly payment × number of instalments remaining) against the total cost of the operation: capital, interest, insurance, arrangement and security fees, plus IRA and costs on the old security when switching lender (ABE Info Service).

The three favourable signals according to ABE Info Service: a remaining term longer than the term already elapsed, a sufficiently high capital outstanding, and a rate gap of at least 0.7 of a point, or even 1 point, for example from 2.5% to 1.8%. Early in the loan, instalments repay more interest than capital: that is when a lower rate saves the most.

The amendment and the 10-day cooling-off period

Renegotiation is formalised by an amendment on paper or another durable medium. It contains a schedule of the capital outstanding at each instalment, the TAEG (taux annuel effectif global, the annual percentage rate of charge) and the cost of credit calculated on future fees and instalments only, and, for a variable rate, the conditions under which the rate varies (Consumer Code, art. L313-39; service-public.gouv.fr).

You can only accept the amendment after a 10-day cooling-off period from receipt of this information. Acceptance is given by letter, with the postmark as proof, or by any means that gives a certain date. To refuse, simply do not return the amendment (art. L313-39; fact sheet F146).

Borrower insurance, the other lever

If the bank refuses to lower the rate, switching borrower insurance can reduce the total cost. You can change it at any time if the new policy offers an equivalent level of cover, without fees charged by the bank (ABE Info Service). Details and steps in our guide on the loi Lemoine (Lemoine Act). Other options: shortening the remaining term or making a partial early repayment (ABE Info Service).

Beware of fake loan buyouts: check that the lender is listed on the REGAFI register and the intermediary on the ORIAS register (service-public.gouv.fr, fact sheet F146).

Which professional to consult

A courtier en crédit (mortgage broker) compares your bank’s proposal with switching offers, including IRA and security costs. If your loan is secured by a mortgage, the notaire (notary) registers the amendment or the release with the land registry. For insurance alone, see our guide on the loi Lemoine (Lemoine Act).