Today’s news, largely dominated by Greece, gives us the opportunity to re-examine debt restructuring. For Prime Minister Alexis Tsiparas, this operation consists in finding a buyer who would be kind enough to accept his conditions. This weekend he almost almost slammed the door on the IMF, to which he must repay 1.6 billion USD in a week. The approach may be questionable, and is certainly not recommended for an individual wishing to lower their monthly payments. Because whether one is a State or a household of consumers, to renegotiate its reimbursements it is advisable to show white cred.
The mortgage guarantee
Debt restructuring is of interest to specialized credit companies, when it includes the acquisition of at least 1 mortgage, and several consumer loans. Because the contribution of the mortgage of a real estate serves as a guarantee to which the lender can turn, in case of default of repayment of the borrower.
However it is important to remember that this outcome is absolutely not the objective of a credit company, hence the importance of the professional stability of applicants. In the case of Greece, the IMF demanded a reduction in retirement pensions and the salaries of civil servants, a guarantee that the government flatly refuses.
Previous plans had included the sale of utility companies in order to bring fresh money into the coffers of the Greek state.
In practice, individuals will be asked to make only one loan, grouping their current consumer and property debts. If he prefers not to renegotiate his home loan but rediscuss only his consumer loans, it will be more difficult for him to find a buyer.
We don’t only lend to the wealthy, we lend to those who are in a position to repay. This is precisely what is lacking in Greece today, as well as in all individuals who do not have a permanent employment contract.
There are banks which accept to grant mortgages and repurchases of credit to households of which one works in CDD, or in interim. However in the best of cases it is necessary to show 18 months of uninterrupted professional activity, even 24 months. It is also essential that one of the 2 co-borrowers has a “stable” job, that is to say with a permanent contract or as a permanent official.
China and Japan confidently lend money to the United States because the country has huge natural reserves. Institutional investors buy French treasury bonds, because the homeland of Molière has the ability to levy taxes quickly, and in droves. Clearly, the USA and France are good borrowers, because they have the production tools necessary to repay. Not only does Greece not have one, it is a bad payer.
Bank accounts always in the green
A household working under CDI for long years in the same company, could find it difficult to restructure its debts, even with a solid mortgage guarantee if their bank accounts are often in the red. The banks appreciate these households which save part of their wages wisely at the end of each month. Credit companies are less attractive, but more expensive.
Once a country is used to restructuring plans, it is forced to borrow more on the markets, because no one wants to lend it.
If within a week Greece cannot borrow from the European Union to reimburse the IMF, or if the Hellenic government does not arrive with a proposal sufficient to convince European finance ministers to convince Christine Lagarde, the Greek State will be in default of payment. It will therefore no longer be able to benefit from the aid of the international monetary fund, and its funding resources will further shrink.
Mortgage margin versus debt study
The job of the loan repurchase broker is to determine the mortgage margin, that is, the difference between the market value of the home, and the mortgage on the mortgage.
For example, a house estimated at $ 250,000, on which there is still $ 100,000 to be reimbursed, has a value of $ 150,000 in the eyes of a financier. Thereupon, in the best of cases, he will agree to restructure debts up to 80% of this amount, or $ 120,000.
Calculate the costs of the operation
There are fees associated with a credit buy-back. First of all, prepayment penalties are almost inevitable, because we will often get the best rate from the competition. In this configuration, a bank or a credit company buys all debts subscribed with a competitor, the latter then applies compensation, as it is entitled to.
These penalties are limited to 3% of the remaining capital, or the sum of the next 6 months of interest, whichever is less. We must also count on administrative fees, both on the broker’s side and on the lender’s side. However, when a file is well done, these costs are added to the debt, borrowers can thus reduce their monthly payments, without having to use personal capital.
Determine the duration of reimbursements
When circumstances allow, a household may lower its monthly payments, while retaining the same repayment tenure. It will thus pay less interest over time, and gain purchasing power.
However, some households do not have the opportunity to do so, for having accumulated consumer credits, which ultimately weighs heavily on their budget. In this case, the length of the repayments is extended, until sufficiently low monthly payments are obtained. This household will pay more interest over time, but will gain purchasing power.
According to the initial nominal rates, for both home loans and consumer loans, it is possible to lower your monthly payments by more than $ 1,000. The Greek taxpayer has no choice, he is forced to accept long repayment periods, in order to give air to his country’s budget. The problem is, however, much more delicate: for the simple truth is that the Greek State cannot pay its installments.