Negotiating mortgage terms is a crucial part of the home buying process. Getting favorable terms can save you thousands of dollars over the life of the loan. Here is your guide to successfully approaching this negotiation.
1. Be prepared before negotiating
Before starting any negotiation, make sure you are well prepared:
a) Review your financial situation
- Evaluate your income, expenses and debt capacity.
- Calculate your debt ratio (must be below 35%).
- Make sure you have enough savings to cover the down payment (20-30% of the property value) and associated expenses (10-12%).
b) Check your credit history
A clean credit history improves your chances of obtaining favorable terms. Regularize outstanding debts or errors on your credit report before negotiating.
c) Find out about the market
Research current interest rates and offers from different banks. Knowing the context will give you a solid basis for negotiating.
2. Know the key elements of the mortgage
When negotiating, focus on the aspects that will have the most impact on your finances:
- Interest rate: Fixed, variable or mixed.
- Amortization period: Longer periods reduce the monthly payment, but increase the total interest.
- Commissions: Seeks to reduce or eliminate origination, subrogation, or early redemption fees.
- Linked products: Analyze whether the associated insurance or accounts are really necessary.
- Percentage of financing: Try to get the bank to finance up to 80% of the value of the property.
3. Comparison is key
Do not accept the first offer you receive. Compare proposals from several banks to identify the best option. If you find a more favorable offer at another bank, use it as a basis for negotiating with your main bank.
4. Strategies for successful negotiation
a) Highlight your customer profile
A client with a stable income, low level of indebtedness and a solid credit history is more likely to negotiate. Emphasize these aspects when dealing with the bank.
b) Negotiates the interest rate
- If the rates are fixed, look for a reduction in the percentage.
- In variable mortgages, try to obtain a lower differential over the reference index (Euribor).
c) Requests to eliminate or reduce commissions
Many banks are willing to negotiate fees such as origination or early redemption fees to attract customers. Ask for them to be adjusted or eliminated.
d) Minimizes linked products
Banks often require life insurance, home insurance or pension plans as a condition for mortgage approval. Evaluate if they are mandatory and negotiate to include only the necessary ones.
5. Take advantage of competition between banks
Banks compete for customers, which can be an advantage for you. If a bank offers better terms, mention this offer in your negotiations. Often, your current bank will be willing to match or beat it to retain you.
6. Consider a mortgage broker
If the negotiation process is complicated for you, a mortgage broker can help you. These professionals have experience negotiating with banks and can obtain more favorable terms on your behalf.
7. Pay attention to the terms of the contract
Before accepting any offer, carefully review the contract to avoid surprises:
- Abusive clauses: Make sure it does not include disadvantageous conditions, such as floor clauses or excessive commissions.
- Interest rate review: In variable mortgages, verify how the reviews will be calculated.
- Associated expenses: Ask who will assume the notary, registry and administrative costs.
8. Negotiate before signing, not after
Once you sign the contract, renegotiating terms is much more difficult. Take advantage of the run-up period to make sure you get the best possible terms.
When is it not a good idea to negotiate?
Although negotiating always seems positive, in some cases it may not be effective:
- If you have a weak financial profile: Banks may be less flexible if they perceive high risk.
- If you already have a competitive offer: If the mortgage already includes low interest rates and favorable terms, an aggressive negotiation attempt may not be well received.
10. Benefits of a successful negotiation
- Significant savings: Reducing interest or fees can save you thousands of euros.
- Greater flexibility: terms adapted to your needs and more manageable installments.
- Customized conditions: Limited linked products or conditions adjusted to your profile.
Negotiating the terms of your mortgage may seem challenging, but with preparation and knowledge of the market, you can get terms that better suit your needs.
