Should I renew or refinance my mortgage?

1. Renewing or refinancing a mortgage: what’s the difference?

You have two options for dealing with an expiring mortgage contract: renewal or refinancing. In the event of a renewal, you enter into a new mortgage agreement with the previous lender at current conditions. When refinancing, you change provider.

In both cases, the terms are renegotiated.

2. When should I think about renewing or refinancing a mortgage?

Start monitoring the market around 24 months before your mortgage term is due to end. The Comparis Mortgage Barometer or Comparis interest rate forecasts can provide some insights here. If you would like to consult an independent mortgage advisor, you should do this around 15 to 18 months before the mortgage expires.

Don’t put off the matter of remortgaging until a few weeks before the end of the term. Time will be on the lender’s side instead of yours – and this will inevitably result in you being offered unattractive interest rates. Some lenders let you secure your mortgage early – up to two years in advance. Refinancing up to 12 months advance often requires no surcharge.

3. Renewing a mortgage: pros and cons

• Pro: less administrative work
  Staying with your current lender is much simpler from an administrative point of view. You often already have the necessary paperwork relating to your property. You still need to submit documents like your tax return and salary certificate, which must be up to date.

• Con: advertised rates
  If you have repaid most of your mortgage, request an interest rate offer from your current lender. The bank will probably give you the advertised rates during the first round of negotiations. This is often significantly higher than the best achievable interest rate. Don’t settle for this initial offer – keep negotiating.

• Special case: multiple tranches
  If your mortgage comprises two or more tranches, you may be negotiating from a weaker position. The situation is especially problematic if the second tranche is not due to end in the next 24 months. There may be reasons for splitting the mortgage into tranches. In most cases, splitting into tranches primarily serves the banks in order to retain customers in the long term.
  One solution could be splitting the mortgage obligation. The easiest way to do this is to leave the maturing tranche with the current lender and to align the due date of the new agreement with that of the second tranche. When both mature, you can easily switch to a more attractive lender.

4. Refinancing your mortgage: pros and cons 

• Pro: playing the market
  The end of a mortgage contract provides an excellent opportunity to “play the market”. If you negotiate with a range of lenders, or have someone negotiate for you, you can generally secure very attractive mortgage rates for the long term.

• Con: more administrative work
  Switching lenders means you have to go through the full credit check process. You have to submit all property-related documentation as well as information on your income and assets.

5. Huge savings potential when negotiating

The gap between the indicative rate advertised as standard by lenders and the best negotiated rate is substantial. The Comparis Mortgage Barometer provides an overview of current benchmark rates and the top rates offered by HypoPlus, the Comparis mortgage partner. It’s therefore worth negotiating. 

However, the best interest rate is not achievable for all mortgage borrowers. Lenders calculate the rate on the basis of individual affordability and the loan-to-value ratio. They also take into account factors such as the type of property, geographical location and other assets.

6. Renewal or refinancing: a good opportunity to increase your mortgage

Arranging your mortgage solution is the perfect time to review the mortgage amount. If you are planning renovations, you can increase your mortgage for a new bathroom or new windows, for example. Any mortgage increase must not exceed the limit of the loan-to-value ratio and must meet affordability rules.

Tip: value-preserving measures should be carried out tax-efficiently over several years or combined into one tax year for smaller amounts. Therefore, it is always a good idea to plan renovations and alteration work well in advance.