You took out a mortgage years ago at a certain interest rate. At present, the mortgage interest rate is significantly lower. You can then decide to take out your mortgage. Do you decide to do that? You then take your mortgage to another lender. The interest can then be much lower.
That is why your mortgage costs will decrease considerably each month. However, there are also costs associated with the transfer. You must of course know how high those costs are. Of course, the costs that you have to pay for rescheduling your mortgage should not be higher than the benefit that you will gain from the lower interest that you have to pay for your new mortgage.
Mortgage refinancing due to the lower interest rate
With the new mortgage that you take out at a lower interest rate with another lender, you have to pay off your old mortgage. You will then be faced with the following costs:
An adviser has helped you to see if reselling is indeed the right decision. He also arranged everything. Of course you have to pay advice costs.
The lender of your new mortgage wants to know the value of your home at the time of the transfer. He has an appraiser determine that price. You have to pay the appraisal costs.
A mortgage deed is required for the new mortgage. This is drawn up by a notary. You also have to pay the notary fees.
Cancel old mortgage
By canceling your old mortgage, the lender of that mortgage is suddenly confronted with interest loss. He asks for compensation for that loss. That amount can be substantial, especially if the fixed-rate period of your old mortgage is still long.
After all, with a long fixed-rate period, the interest loss is considerable. Is your fixed-rate period (almost) over? Then you do not pay a fee, also known as penalty interest, to the provider of your old mortgage.
Don’t count yourself rich
You can therefore calculate whether the savings due to the lower interest rate and the costs that you have to incur in order to make a loan actually yields a saving. To calculate this, various online calculation tools can be found on the internet. However, these internet tools may incorrectly charge you rich.
They do not take into account that the provider of your old mortgage may offer a considerably lower interest rate after the fixed-rate period of your old mortgage. Continuing the old mortgage can therefore be more financially attractive than it appears at first sight.
Take fiscal aspects into account
Does your new mortgage have a considerably lower interest rate? Then remember that the mortgage interest deduction is falling. This decrease has a negative effect on net savings. You can, however, deduct the tax incurred in the year of the transfer of the notary fees and other transfer costs incurred.
This therefore has a positive effect on net savings. If you want to calculate the exact possible saving from refinancing, then you do not only have to look at the gross saving, you will get a distorted picture of the actual saving.
Calculate the payback time
Do you want to know if it is worth taking out your current mortgage? Then you must calculate the payback time. That is the time you need to recoup the costs incurred. The interest rate of your new mortgage depends on how long you keep the new mortgage. Is the remaining fixed-interest period shorter than the payback period? Then relocating your mortgage is usually not worth it.