When refinancing your loan is worth it
What moving a loan to another bank costs, how long it takes to recover, and why a lower payment is not always a cheaper loan.
Published
What refinancing means
Refinancing means taking out a new loan, usually with another bank, and using it to close the old one. It makes sense when the new loan costs less than the one you have, once the cost of moving is counted.
What moving costs
- The early repayment fee on the old loan: zero on a variable rate, at most 1% of the amount repaid on a fixed rate.
- The costs of the new loan: the property valuation, notary and mortgage registration fees, and any bank fees.
Many banks cover part of these costs to win you over. Ask first.
An example where it pays
You have a balance of 250,000 lei, 20 years left and an 8% rate. The payment is 2,091 lei.
Another bank offers 6% over the same term, and moving costs you 2,500 lei. The new payment is 1,791 lei, 300 lei less a month. The costs are recovered in 9 months, and by the end of the loan you save about 69,500 lei.
A borderline example
The same balance, but your rate is 6.5% and fixed, so you pay a 1% early repayment fee: 2,500 lei, plus 2,500 lei of costs on the new loan.
The payment falls from 1,864 to 1,791 lei, 73 lei a month. You only recover the 5,000 lei after 69 months, almost six years. If you sell the home or repay the loan sooner, you have lost money.
The longer-term trap
Go back to the first example, but stretch the new loan over 25 years instead of 20. The payment falls further, to 1,611 lei. The total saving, however, drops from 69,500 to about 16,000 lei, because you pay interest for five more years.
A lower payment does not automatically mean a cheaper loan. Compare the total amount to repay.
How to decide
- Ask for the new offer on the remaining balance and the remaining term.
- Add up every cost of moving.
- Divide the costs by the monthly saving: that is the number of months until you break even.
- Ask yourself whether you will still have the loan after that point.
Before anything else, ask your own bank for a better rate. Sometimes you get it without moving.
Put your own figures into the refinancing calculator and compare offers by DAE.