Real estate credit: the modulation of monthly payments?

11-02-2020

Whether it is upward or downward, the revision of maturities offers more flexibility in loan management. Let’s find out together the effects of these variations and the conditions to be able to request them from your lending institution. In fact, not all mortgage loans are systematically flexible.

Falling or rising monthly payments: what impact?

Falling or rising monthly payments: what impact?

An increase in the deadline

An upward modulation of maturity implies a substantial increase in the borrower’s income. If the latter wishes to favor a faster repayment of his loan (instead of saving or profiting directly from this new purchasing power), he will reduce the total cost of his credit.

It is then a question of clearly defining this increase: know that the earlier it intervenes in credit, the more effective it is. But should we prefer a one-off or regular increase? For example, a monthly payment increased by 40 dollars until the end of the loan or a monthly payment increased each year by 10 dollars? In both cases, the operation is advantageous in the long term: everything is a matter of calculation and anticipation.

Sometimes this maneuver ingeniously replaces a partial prepayment, traditionally billed by the bank.

Note that during credit, the maximum debt ratio is no longer looked at in the same way: it is better to keep it at a reasonable level, to generate a loan offer, even if it means increasing your monthly payment in a Secondly. A maneuver, accepted by the banks and offering flexibility to the borrower, insofar as he can again modulate it downwards if necessary.

A decrease in the monthly payment

bank

A downward modulation of maturity, most of the time, reflects the arrival of a financially more delicate period. Quite logically, such an operation lengthens the duration of the credit and mathematically increases its total cost. In other words, this maneuver has the radically opposite effect of an increase in monthly payments.

Note that the percentage of authorized decrease is traditionally less important than that which allows increasing the maturities. Sometimes this modulation results in a limit on the extension of the duration of the loan.

For example, the LCL, these operations are free from the 25th-month loan: if the increase in the limit of 10% from the previous deadline and within a longer duration of 2 years, in case of a drop. In other banks, such as CIC, these modulations are chargeable but can reach + 30%, in the event of an increase, for the same terms as the LCL in the event of a decrease.

What conditions must be met in order to be able to adjust?

To be able to make these modifications, certain requirements must be met:

  • The franchise period: traditionally, no operation of this nature is authorized before a certain period. Varying from one establishment to another, it can run from 12 to 24 months, after the release of funds.
  • The authorized amplitude: as specified in the example cited above, the modulation of the monthly payments is not the same according to the banks.
  • Frequency of changes: traditionally, banks do not allow more than one modulation per year; some up to a maximum of 2.
  • The cost of the operation: like the above example, the modulation of deadlines can be a free or paid option depending on the organization. It is therefore advisable to inquire about this point when taking out the loan. Be careful, some banks are tricky and announce the free operation, while it only concerns the first modulation.

From the first moments, it is strongly advised to call upon a broker to study all the small lines of the loan offer, before its signature: does your proposal authorize these modulations? Do they generate a cost? So many questions that a mortgage expert, can shed light on, or even negotiate in your favor!

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