You have just inherited or earned money and want to repay your credit at once, you plan to resell your property or renegotiate your credit, before the maturity of your loan. Here are the 3 cases where your bank is entitled to ask you for prepayment penalties. What do they correspond to, how to diminish them?
What are the penalties for early repayment?
From the moment when thewe pay off a loan before its due date, the bank suffers a loss of interest, so it will charge you indemnities, as compensation
Of course, this clause must be clearly stated in the original loan agreement: "The penalties of early repayment are only due if they are explicitly registered in the contract itself (Court of Cassation, Civil Chamber 1, April 24, 2013, No. 12-19070)"
It is good to know that today some banks give up. An important point to check from the loan offer. When they are mentioned in the contract, these penalties are the subject of legislation. They necessarily amount to the sum of the interest payable over the next 6 months + 3% of the outstanding capital.
If you have chosen the mortgage to guarantee your property, know that you will also have release fees to pay. They represent between 0.7% and 0.8% of the amount of the loan granted and are broken down as follows:
Notary fees subject to VAT 19.6%
+ security contribution
+ registration fees
+ administrative costs.
How to avoid prepayment penalties
The penalties relate to fixed rate loan contracts, unlike variable rate loans that are not subject to them. And if you have a mixed rate loan, just wait until the end of the fixed-rate period and repay your loan when it is at the variable rate. This being exempted from penalties.
Finally, you have to be aware that you can negotiate with your bank. Rather than seeing you go to another financial institution, it can lift this allowance to keep your customers. Indeed the amount of prepayment penalties is not enough to cover his losses.
However, if your bank applies the penalties to you, while you want to take out a new loan at home, do not hesitate to play the competition.