Real Estate Mortgage Loan: What is it exactly?

Before agreeing to lend you a sum of money for your real estate purchase, a bank will ask you for a concrete guarantee.

She wants to make sure she can recover her bet in the event of default on your part – if you find yourself in the situation of not being able to repay your loan. The real estate mortgage is the most common of these guarantees. Here are four questions to better understand this mechanism!

What is a real estate mortgage loan and what does it entail?

Lending money is always a risk. The longer the loan period, the greater the uncertainty for the bank: at any time, a problem may prevent you from repaying all of your mortgage. It is to answer this eventuality that the lending institutions force the subscribers to choose a method of guarantee. The real estate mortgage is one of them.

The mortgage is therefore a guarantee taken by a lender on the real estate that the money allocated allows to acquire. It always deals with this type of property, only in the context of a mortgage. If, for any reason, you are no longer able to repay your credit, the real estate mortgage allows the bank to seize the property for resale.

In other words, the mortgage is the safety net stretched by the bank as part of a home loan. It guarantees the proper performance of the payment obligation, and commits you to repay your debt.

How does the real estate mortgage loan work?

It is also referred to as a “conventional mortgage” because it arises from a contract signed voluntarily by both parties, that is, when the debtor and the creditor agree before a notary. This guarantee relates to the property acquired thanks to the credit granted, including if this property does not exist in fact (if you buy off plan).

The real estate mortgage only plays in one case: if you can not repay your loan. The bank can then request the seizure of the property and proceed to its sale, but only by decision of justice – your banker can not decide alone to take your keys! Beforehand, however, the establishment must have registered the mortgage with the land registration service.

Finally, the real estate mortgage is lifted as soon as you are done paying off your principal due. This can be done in three ways: once the credit is fully settled and the property acquired; after the seizure of the property and its resale by the bank; or when the loan has been settled following the resale of the property by you (prior to the maturity of the loan). It remains registered in the land advertisement during the year following the balance of the credit.

How much does this guarantee cost?

In addition to the registration to the land registration service and the related tax, at your expense, the real estate mortgage generates various expenses. These are included in the fees paid to the notary, to cover taxes and disbursement fees. On average, the mortgage costs between 1.5 and 3% of the total amount borrowed.

However, other fees may apply during the course of the loan. If you repay your loan in advance, you will have to pay yourself to raise the mortgage on your home: these are the costs of release.

What are your alternatives?

The real estate mortgage is not your only option. You can also opt for other guarantees: the lender’s and the bank guarantee. The first is similar to the mortgage in its overall operation (the guarantee relates to the property purchased and the contract must be established before a notary). Since it is not necessary to register it in the land registration service, is less expensive; but it can not relate to goods under construction.

The second, the bank guarantee, works very differently. In this configuration, it is a bonding agency that guarantees for you, and is committed to take over if you can not repay. This is a very practical option at all levels: the bank is fully reassured (it does not even need to seize the good) and the deposit is the least expensive guarantee for borrowers. The only problem is that the bonding organizations choose the files with great care and according to many criteria!

Loan in fine or repayable loan: the guide to make the right choice

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.

Loan in fine or repayable loan: what is the best option?

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!

Borrow after 50 years – Real estate loan advice

With the increase in life expectancy and the aging of the population, the projects of the over 50s are more than ever the attention of lending institutions!

Borrow after 50 years

Real estate credit players now offer specific products to enable seniors to borrow and secure their mortgage.

Lenders, particularly attentive to the income of future buyers and their debt ratio, have developed loans adapted to the income profile of seniors to take into account the decline in income related to retirement. These “tailor-made” credits may for example provide for a decrease in the monthly payment at the time of the cessation of activity.

All real estate loans must be accompanied by a disability death insurance covering death and total and final disability .

This loan insurance provides protection against certain life risks (death, disability, unemployment, temporary incapacity for work, etc.) and protects his heirs during the credit period. However it can be complicated for a senior to make sure, precisely because of his age.

The banks have thought of everything with special solutions senior that guarantee the borrower up to a particularly advanced age: 80 or 90 years. It should be noted that some players offer lighter and easier medical formalities via partner medical centers.
The price of death insurance disability is sometimes a brake to achieve his project since for a senior contract the insurance premium can double or even triple compared to a standardized contract.

To take out an insurance contract other than that of your bank, that is to say opt for a delegation of insurance, can allow you to make significant savings. The total cost of mortgage can be reduced by up to 20% 1 .

“Thanks to exclusive rates negotiated with our insurance partners, we can save you thousands of euros1 while optimizing the guarantees of your contract.

1 . Give as an illustration only. This document does not constitute an offer or solicitation and should not be construed as investment advice. It does not replace a detailed study of the situation of a potential borrower to accompany it in its reflection and in the implementation of its real estate project.

2 . Borrowers should be aware of the risks associated with a home loan in order to know if such a transaction suits them and ensure that they understand the obligations related to this transaction, such as those related to the repayment of a mortgage and debt born of the granting of such a loan.

3 things to check before buying out your mortgage loan

Mortgage rates rebounded slightly at the end of 2016, but still remain attractive today.

Takeover home loan

For borrowers, it is not yet too late to redeem credit . That said, for the operation to be interesting, it is important to be attentive to several points.

Real Estate Loan Redemption: Things to Consider

Since January, most banks have raised their mortgage rates.

Nevertheless, experts believe that it is still too early to talk about a reversal of the trend.

For a credit over 20 years, real estate rates average 1.85% in 2017, against 2.05% in 2016, while the minimum rate is 1.24% against 1.41% one year more early.

The moment is thus always favorable to realize a repurchase of credit.

However, to find out if it’s really worth it, you need to consider the following three criteria :

  • The duration : it must be in the first third of the repayment, period where you normally pay the most interest.
    For example, for a 20-year loan, the redemption must be made during the first six years of repayment to be profitable.
  • The rate differential : the difference between the old and the new rate must be at least 0.70%. For your convenience, know that online simulators exist to help you compare the real estate rates offered by different banks.
  • The outstanding capital : the amount of capital you have to repay must be more than 70,000 euros. Below this, the credit institutions will estimate that the amount is too small to warrant a buy-back.

Serious savings in perspective

Redeeming your credit can save money, as the following simulation shows.

For example, for a loan taken out in April 2014 at a rate of 3.30% excluding insurance and repayable over 20 years, redeeming a mortgage in 2017 at a rate of 1.55% will allow you to:

  • Reduce your monthly payment by about 13% (969 to 840 euros).
  • To lower the cost of your credit by 27,000 euros.

Instead of paying € 48,131 in interest on the outstanding credit, you will only have to pay € 20,797 (new credit).

Borrowing capacity, essential criterion for obtaining a mortgage loan

To know how much he can get from the bank to finance the purchase of a home , an individual must know his ability to borrow .

Borrowing capacity and mortgage

Here are the keys to calculating this essential indicator.

Determine borrowing capacity

The borrower’s borrowing capacity corresponds to the amount that he can devote each month to the repayment of his loan, taking into account his income (wages, retirement pensions, property income, interest on financial investments, etc.). It may be necessary to add monthly payments related to other outstanding debts.

But the bank also considers the rest to live, which represents the sum available to the household once the current fixed expenses deducted: food, electricity, transport, telephone, taxes … If it is not enough to cover these incompressible charges, the loan is refused. The minimum is determined by the place of residence (because of the cost of living) and the composition of the home.

The amount spent on monthly payments can not exceed 33% of total income . However, banks accept a higher debt ratio for people with high incomes or a comfortable living to live, as well as young people with high potential …

To get a first idea of ​​its ability to borrow, experts recommend performing simulations on online mortgage comparators brokers and banks.

Improve its borrowing capacity

The pooling of loans is a solution to lower its debt ratio . All debts are replaced by a single loan associated with a single monthly payment, the amount of which is reduced by the lengthening of the repayment term. Even if the transaction involves some costs, its interest is undeniable, especially if there are consumer credit at a high rate.

Others choose to buy two home loans in parallel, one being shorter (15 years and 20 years for example) and therefore, with a mortgage rate that reduces the amount of interest. The monthly payment decreases accordingly, increasing the rest to live.

Another option is tiered lending. The amount of the monthly payments is minimized during the first years of the mortgage , the time to find another offer at the best rate or time to settle the loan, before being revised upwards.