Refinancing a mortgage (whether through a rate modification with your current bank or by switching to another lender) can bring considerable savings over the remaining years of the loan, but only if the calculation is done correctly, including all the costs of the switch, not just the difference in interest rate.
What refinancing means in this context
It refers to changing the terms of your current mortgage to get a more favorable interest rate, either by negotiating with your own bank (a rate modification) or by switching to another lender (a mortgage transfer), both already explained in more detail in other articles on this blog.
The basic calculation: interest savings versus the cost of switching
Net savings = Total interest savings over the remaining term − Costs of the refinancing operation
The costs to consider include possible fees (capped by law, but not always non-existent), notary and registry costs if applicable depending on the type of operation, and the time and administrative effort involved in the process.
Why the remaining term matters so much in this calculation
The more years your mortgage has left, the greater the potential accumulated savings from an improved interest rate, since those savings apply over more years of future installments. Refinancing a mortgage with only a few years left rarely pays off, unless the interest rate difference is very significant.
The outstanding capital also determines the potential savings
Similarly to the term, the larger the capital still outstanding, the greater the absolute savings in euros generated by each percentage point of improvement in the interest rate, since interest is always calculated on the capital outstanding at each point in time.
When refinancing usually does NOT pay off
- If the interest rate difference compared with your current mortgage is very small (a few tenths of a point), especially if the loan has only a few years left.
- If the costs of the operation (even though capped by law) are proportionally high compared with the expected savings.
- If your financial situation has worsened since you took out your original mortgage, which could make it harder to get genuinely better terms in a new negotiation.
Use other lenders' offers as a negotiating lever
As explained in the article on how to negotiate the best mortgage, presenting your current bank with concrete offers from other lenders is usually the most effective way to get a real improvement in terms, even if you ultimately decide to stay with your current bank through a rate modification instead of switching lenders.
Calculate your potential savings before starting the process
Our mortgage calculator lets you compare your current installment and total cost against the scenario you expect to achieve after refinancing, so you know precisely whether the switch really pays off in your specific case.