We have already been a couple of posts analyzing the new Law 5/2019 regulating mortgage credit contracts, which has meant an update of the conditions under which this type of financial services worked, both for banks and for any particular lender (such as is our case).
At Lite Lender Company we are regulated under the same regulations, which means that you can check in the BOE publication what are the conditions under which our loans are regulated.
Early repayment of real estate loans
Article 23 of Law 5/2019 regulating mortgage loans describes exactly the conditions and assumptions under which an early repayment of the loan can be made. This article clearly specifies that the borrower can repay his loan in advance before the contract period without the lender refusing to accept it without first evaluating the available options.
Early repayment of a loan is not free but can be cheaper
The early repayment of a mortgage loan does not mean automatically saving the interest on the entire part of the loan that is anticipated, but rather, the lender must be compensated for paying the transaction in advance and for the fact that he stops receiving interest that, in in the event that the loan had continued the course established in the contract, the lender would have received.
However, although making an early repayment has a certain cost for the client, it is much less than continuing to pay the loan on a regular basis.
Operation to make an early refund
The following is a summary of the operations established by law that must be followed when making an early repayment of our mortgage loan.
- Lender and borrower are required to agree on a prior communication period of a maximum of one month to make the repayment.
- When the client communicates to the lender his intention to reimburse in advance the amounts that are still due on the basis of the signed contract, the lender (Lite Lender Company) will send all the information to the client within three business days in order to be able to carry out the operation.
- The lender must explain clearly and concisely in the information sent to the borrower the consequences of the early settlement of his loan and the costs it entails.
Advantages for the borrower of making an early repayment
The regulation establishes that the borrower or client has the right to see the total cost of the loan reduced in the case of making a maturity or prepayment. This reduction in cost is produced by the automatic termination of interest and costs corresponding to that period that is paid in advance.
In addition, the regulations also explicitly state that the insurance that has been contracted for the signing of the mortgage loan must be extinguished. Similarly, the client can request the insurance company that wishes to keep the insurance contract in force, designating a new beneficiary (since the lender will have already recovered their money).
In the event that the borrower decides to terminate the insurance, it is his right to request the refund of the part of the insurance premium not enjoyed.
Cost to the borrower of making an early repayment of his loan
Mortgage loans from Lite Lender Company are at a fixed interest rate, which means that both the lender and the borrower must contractually agree to compensation in favor of the lender, although always respecting the limits that we describe below (and that are described in article 23). , section 7.a of the standard).
Early repayment means that the lender will no longer receive interest in the future, which in practice translates to a financial loss for the lender.
To compensate for the financial loss for the lender, the regulations state that the lender may demand compensation when the client makes an early repayment, and that the commission demanded by the lender (Lite Lender Company) can never be greater than the amount that we lose. Specifically, this compensation commission in favor of the lender may not be more than 2% of the total capital that is repaid in advance.