Do you want to buy a rental apartment in Paris? A house in the south of France? Or just your main residence? You go to your bank to ask for a home loan, but at what interest rate?
As a reminder, the interest rate is the remuneration for the risk taken by the bank by lending you money. It depends on many factors. First of all, each bank wishes to attract a certain profile of customers and thus offers interest rates and loan conditions depending on your profile, according to its commercial and marketing positioning.
Whether or not the interest rate is high or not also depends on the type of loan you take out. For example: in-fine loans or bridging loans are subject to higher interest rates to compensate for the risks they entail.
The annual percentage rate of charge (APR) is an indicator of the total cost of financing your real estate project. It takes into account the costs related to the loan: the cost of insurance, administration fees, account management fees, etc. The only cost that the APR does not take into account is the notarial cost. However, the latter does not vary according to the financing proposals from one bank to another.
You have found the property of your dreams, you have just signed an agreement to sell. And your banker offers you different interest rates. How to choose the right rate for your real estate project?
The fixed rate mortgage is synonymous with security. The majority of French people take out mortgages at fixed rates.
As soon as you sign your loan, you know the amount of your monthly payments, the total cost of your loan, and therefore your APR.
The fixed loan allows you to have a clear vision of the financial efforts that you will have to make over the capital repayment period. And not to be charged by an increase in interest rates.
Conversely, if the banking market experiences a drop in interest rates, you will be able (depending on the terms of your contract) to renegotiate it with your bank.
For fixed rate loans, prepayment penalties must be taken into account. Many banks ask you to pay up to a maximum of 3% of the outstanding capital.
Banks can offer you variable rate mortgages. The rates are revised periodically based on a market index. This is the rate at which banks lend money to each other.
The variable rate loan is therefore a bet to take on the future and the evolution of the rates at which banks lend money to each other.
Initially, your rate will be lower than a fixed rate loan. The total cost of the loan may therefore be lower if the economic situation remains unchanged over the total duration of your loan.
When taking out your variable rate mortgage, keep in mind that in the event of a rate increase, it is possible that all or part of the rate increase will be passed on over time. However, if the duration of your loan is already long, the bank may refuse you this repercussion.
If you still want to take out a variable rate mortgage, you can guarantee yourself a maximum increase in the interest rate thanks to the capped rate. These are capped rates to limit the risk of fluctuations.