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Loan Consultant Says Time To Refinance Mortgage Loans Is Now
Interest rates on mortgage loans rose for the third time since 2005 in March. More than 70 per cent of mortgage borrowers will have to pay higher instalments in April, Tihomir Toshev, executive director of Credit Center, an independent loan consultant, said at a news conference on April 7.In the past three months alone, eight of the 11 banks on Credit Center's watch have raised their interest rates on standard mortgage loans maturing in 25 years and financing up to 90 per cent of the property's value, Toshev said.
Clients should consider re-negotiating or re-financing their contracts, the two opportune loan management options in such circumstances, he said.
The time was ripe because international financial markets were settling down, the European Central Bank was set to shortly cut EURIBOR (the base rate to which banks peg euro-denominated loans), hence local banks were unlikely to raise interest rates on loans before the end of the year and clients should not wait for better timing, according to Toshev.
Currently, about 15 per cent of clients who opted to manage their mortgage loans did re-financing, whereas the remainder chose re-negotiation, Credit Center data showed.
According to Credit Center, the ratio is set to change to 25-75 by year's end as borrowers begin to familiarise with the benefits of re-financing, the transaction including the early repayment of the existing loan and the subsequent signing of a new one under improved terms.
It will become all the more attractive option when most banks waive the penalty fee for early payment of the mortgage loan, Toshev said.
“A 50 000 leva standard mortgage loan signed in 2005 that we re-financed last month saved the client 18 500 leva,” he added. “The higher the value of the loan, the more palpable the savings.”
While both re-financing and re-negotiating entail a cut in monthly instalments or loan term, the value of instalments remaining the same, the savings in re-financing are more tangible because re-negotiating does not include the more favourable terms offered to new clients, whereas re-financing does.
A drawback of re-financing, however, is high transaction expenditures. A client opting for re-financing needs to pay a penalty fee for early repayment, a one-time fee for the new credit, notary and other fees.