If you are planning to renovate your house or redevelop your garden, it is possible to take some money back from your current mortgage. We review the conditions and limitations of this option. And there are alternatives too.
For those who have already taken out a mortgage and have started to repay it, most banks offer the possibility of taking back an additional amount as part of that same mortgage registration to finance work on the property. Such a credit reopening consists of granting a new tranche of money under the existing mortgage registration. The rules vary depending on the credit institution. Some banks allow you to take back an amount limited to the already repaid part of the initial loan, while others, such as BNP Paribas Fortis, allow an amount greater than this repaid part.
What are the possibilities?
A credit reopening within an existing loan is covered by the current mortgage registration. The duration of this new loan can, in principle, be chosen freely and does not need to coincide with the remaining duration of the initial mortgage loan. However, it is important to note that a mortgage registration always has a duration of 30 years. The additional amount borrowed via reopening credit must be repaid in full before the end of this period.
Professor Bart Chiau, from the Faculty of Economics at UGent, illustrates this with an example: “If you took out a 20-year mortgage loan 15 years ago, you are not obliged to repay the amount of reopening credit over the remaining five years of your initial loan. You can, with the bank’s agreement, spread this repayment over a maximum period of 15 years, which corresponds to the remaining duration of your mortgage registration.”
“If you still wish to extend the reopening of credit over a longer period, you can ask the bank to renew your mortgage registration,” explains Bart Chiau. The costs of this renewal are significantly lower than those of a new mortgage registration, because it does not require new notarial intervention.”
Thus, reopening credit can be a flexible and less expensive solution to finance work, provided you understand the conditions and limitations linked to the existing mortgage registration.
What are the financial consequences of reopening credit?
When you re-open credit within an existing loan, it is subject to current interest rates, which have increased significantly since the start of 2022.
According to the Immotheker Finotheker rate barometerthe average interest rate for a 10-year loan is currently 3.05%, an increase of 0.72 percentage points compared to 10 years ago, and 1.83 points compared to 5 years ago.
Cost advantages
A credit reopening is covered by the existing mortgage registration, which means that there is no need to make a new mortgage registration. As a result, you avoid significant costs such as notary, deed or mortgage fees. According to a simulation on Notaire.be, for an additional amount of 75,000 euros borrowed, you save around 3,500 euros compared to taking out a new loan.
However, the bank may charge you processing fees for modifying your mortgage loan. Since January 1, 2024, these costs have been legally capped at 350 euros.
What about outstanding balance insurance?
An important point to consider is adjusting your outstanding balance insurance. As Bart Chiau points out, this insurance must be adapted or extended to the additional amount borrowed. This can be complicated because premiums increase with age. If you have experienced health problems since the initial subscription, acceptance of the new coverage could even be compromised.
So while re-establishing credit offers financial advantages over a new loan, it is essential to carefully consider the additional costs associated with insurance, as well as market conditions.
When credit is reopened, the outstanding balance insurance must also be adjusted. It’s not always easy.
What are the alternatives to reopening credit?
If you are considering financing work, several alternatives are available to you apart from reopening mortgage credit.
1. Take out a new mortgage
You can take out a new mortgage loan, for example, with another bank offering more advantageous rates. However, this involves significantly higher costs than reopening credit. In general, a personal contribution is also required. You will also have to deal with notary and mortgage fees, which considerably increases the total cost.
2. Take out a renovation loan
A renovation loan is a simpler and faster alternative to a mortgage loan. The administrative formalities are less cumbersome, which means fewer or no application fees. As this type of loan does not require a visit to the notary, you also save on notary fees and deed costs.
However, a renovation loan does not allow you to benefit from tax advantages. In addition, the interest rates for this type of loan are generally higher than for a credit reopening or a mortgage loan. The minimum and maximum amounts vary between banks, so it is recommended to compare offers.
3. Green loan or eco-loan
If your work aims to improve the energy efficiency of your home, you can consider a green loan or eco-loan. These loans, which are also installment loans, are often offered at lower interest rates than traditional renovation loans. Here again, offers differ between banks, so it is advisable to compare carefully.
4. Take an advance on your group insurance
According to Bart Chiau, another option is to use an advance on your group insurance (or supplementary pension). Funds already accumulated in your retirement savings plan can be used to finance renovations, under certain conditions. This option can be interesting if the end of your contract is approaching, as the loss of interest will be relatively low.
The amount you can withdraw will depend on what you have already accumulated. No notary fees or deed fees are required for this option, making it a flexible and inexpensive solution.
No housing bonus for reopening credit
It is important to note that new credit reopenings no longer allow you to benefit from the housing bonus. This tax reduction was eliminated in the three Regions of Belgium: in Wallonia in 2016, in Brussels in 2017, and in Flanders in 2020.
“The removal of the housing bonus only applies to new credits,” explains Bart Chiau. Homeowners who took out their loan before the new rules came into force continue to benefit from the tax benefit for the remaining term of their loan.” A reopening of credit is considered as a new credit by the tax authorities, which means that it does not allow the advantage of the housing bonus to be extended.
