If you ask your bank to give you a home loan, it will generally offer you an amortizing loan – the type of loan most frequently subscribed.
However, nothing prevents you from preferring another form of loan, called “in fine”, if this solution is better adapted to your situation. So, loan in fine or loan depreciable, what are the differences? And what is the best option?
The depreciable loan: a repayment
The vast majority of buyers are offered by their bank a loan depreciable, especially if it is to buy a principal residence. This credit is the most common, and is simply to repay the amount borrowed gradually, according to the monthly payments – reason for which we speak of amortizable loan, because the capital is “depreciated” in time.
Each monthly payment of this loan includes a portion of the total capital and interest, as well as insurance costs. (Note that the repayment is not necessarily monthly, it can also be quarterly.) In the early days, you pay a greater share of interest; then, the proportion comes to balance, before the capital takes a preponderant place.
In other words, the amortizing loan consists of a “soft” repayment, spread over time, with interests constantly recalculated according to the capital remaining due.
The loan in fine: a repayment on maturity
There are, however, other types of home loans, the best known of which is in-kind loans. In this model, the capital is not repaid progressively: it is paid in full, once the contract has expired. But then, what are your monthly payments for the duration of the credit? Only loan interest and insurance costs. This is why we talk about loan in fine (“at the end”).
Beyond the deferred repayment, the particularity of the credit in fine lies in the calculation of the interest. Since the capital does not change throughout the term of the loan, these interests are calculated on a sum that does not amortize. Consequently, they never decrease. If your contract stipulates that you have to pay 100 euros of interest, you will pay this 100 euros until maturity. In the long run, this credit is therefore more expensive than its depreciable version.
Loan in fine or loan repayable, what to choose?
So, loan in fine or loan depreciable, what is the best solution? In reality, everything depends on your situation. You should know that the loan in fine is more expensive than conventional credit: if you borrow 200,000 euros over 20 years, with an interest rate set at 1.65%, you will have to pay monthly payments of 978.95 euros in part of a depreciable loan. In all, your credit will cost you almost 35 000 euros of interest. With a loan in fine, you will only pay 275 euros monthly, but the final interest will rise to 66 000 euros, almost double!
The main difference between a loan in fine or a loan that can be written off is therefore the much greater cost of the first loan. But even if it is more expensive, the credit in fine has a major advantage: throughout the duration of the loan, monthly payments are much lighter and weigh less on your finances. This allows you, in return, to balance your real estate transaction while setting aside the unpaid amounts, to repay the principal at maturity.
Conversely, the depreciable loan represents less interest overall, but monthly payments are also higher. They require mobilizing high incomes each month, which can weigh heavily in the balance!
You may have already understood: loan in fine or loan depreciable, the choice depends on the type of acquisition you make. If the second is generally chosen for the purchase of a principal residence (your monthly payments represent your only credit repayment), the first may be more advantageous if it is a rental investment, to the extent that the low level of monthly payments can easily be covered by rental income.
This does not preclude having to put money aside for the final balance, but during this time, you improve the return on your investment!