Mortgage loan
The mortgage loan is a loan backed by a mortgage and intended for property owners. As a reminder, the mortgage is a mortgage loan guarantee that allows the bank to seize the property in the event of default in repayment and if no amicable solution has been found. The mortgage loan allows:
- to acquire a new or old property;
- to buy a main or secondary residence;
- to make a rental investment. In this specific case, the sums lent are only used to pay for the desired property or service. Payment is traceable and can be made either by calling for funds or by payment of invoices.
In other cases, the mortgage loan can be used to obtain cash ( this is part of the advantages of a mortgage loan ). The sum is then paid directly to the borrower without the bank’s right to inspect the use of the funds.
The mortgage can be fixed or variable rate. But when real estate rates are low as in 2021 for example, banks do not apply the variable rate because the values are already very low.
When to apply for a mortgage loan?
The mortgage loan is interesting in certain cases, in particular when you:
- Want to buy a property abroad. In this case, the bank cannot take a guarantee on a property abroad. You must hold real estate assets in France which will be mortgaged to finance the purchase of the new property located abroad;
- Are senior and want to carry out a real estate project. The more you borrow at an advanced age, the more the bank takes a risk to finance you. If you own real estate, the bank can mortgage it to guarantee your mortgage;
- Redeem credit. You want to group your credits to change the terms of repayment (lower your monthly payments by extending the duration of the credit). The bank can offer you a repurchase of mortgage credit when it requires the mortgage of your property to guarantee the consolidation operation;
- Free up cash from your real estate assets. The mortgage loan allows you to rely on the value of your assets to provide you with cash that can be used as you see fit. Note, however, that banks are reluctant to this category.
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Am I eligible for the mortgage loan?
To qualify for the mortgage loan, you must be a French tax resident. As with any credit, your debt ratio is also studied. Your income must make it possible to repay the new credit while taking into account other current charges. If you want to get an idea of your debt ratio to check if you can support a new charge, you can use our simple and free debt ratio calculator. You just have to enter your income as well as your expenses and you get a quick simulation. The authorized debt ratio is 33%. If your current rate is 10%, your income allows you to bear an additional charge of 23%.
Another condition, the property to be pledged must belong to you in your name or belong to an SCI (Société Civile Immobilière). In the case of the SCI, the banks generally require that all the partners of the SCI stand surety for the loan.
If you are not the sole owner of the property you wish to pledge, all the bare owners or usufructuaries must stand as mortgage surety.
Can you take out a mortgage loan without an income?
To get a mortgage, you must be able to repay the money borrowed. To verify this, the bank will analyze your financial situation. It is, therefore, necessary, if you apply for a mortgage loan, to receive regular income.
To find out how much it can lend you, the bank will calculate your borrowing capacity according to your expenses and your income while paying attention that your debt ratio after operation respects the 33% limit.
How does the mortgage loan work?
You own a property that has already been sold
Has the property you want to pledge already been sold? The bank that grants you the mortgage loan then mortgages it. This gives rise to a publication in the land registration services. With the intervention of a notary being necessary, costs will be applied to you. These include the registration of the property on a real estate file, the administrative costs but also the remuneration of the notary, as well as the agents concerned by the operation.
You own a property for which you are still repaying the loan
The property you want to put in the mortgage is not settled yet? The new lending institution offering the mortgage loan must then buy back the outstanding capital and recover the 1st rank mortgage guarantee. That is to say that by redeeming your debts, the new bank recovers the right to the mortgage and has priority over the seizure of the property in the event of default on the part of the borrower.
Again, to set up the mortgage, you have to pay mortgage fees, which should not be confused with the notary fees for real estate acquisition. The mortgage then remains valid throughout the credit without exceeding 50 years and can be lifted at any time either because you sell the property, or because you have received a sum that allows you to repay the capital remaining due in full and early.
Warning
The total early repayment is possible whether the mortgaged property is settled or not. However, it will be necessary to provide for release costs since the passage to the notary is necessary. A release cost simulation tool made available by the Paris Chamber of Notaries already allows you to have an idea of your possible release costs.
What are the advantages and disadvantages of a mortgage loan?
Most
- The mortgage loan makes it possible to buy a property abroad;
- It is possible to finance real estate projects for seniors;
- The mortgage loan makes it possible to free up liquidity;
- As part of loan consolidation, the bank can offer you a mortgage loan buy-back;
- It is possible to prepay a mortgage loan.
The lesser
- The mortgage of the property generates costs such as notary fees;
- Early repayment of a mortgage incurs mortgage discharge fees;
- The amount of the mortgage loan is calculated on the price of the property pledged as collateral. The amount of the credit generally corresponds to 70 or 80% of the price of the accommodation.
How to get a mortgage loan easily?
To obtain a mortgage, you must apply to the bank. This verifies the feasibility of your project by calculating what is called the mortgage ratio.
In this calculation, the amount to be financed must not exceed the value of your property. Each bank sets the minimum and maximum acceptable mortgage ratio, usually between 70 and 80%.
Your mortgage ratio is therefore determined according to the price of your property to be mortgaged.
Mortgage ratio = amount to be financed ÷ value of the property x 100
Example:
You own a property estimated at €300,000. To obtain a mortgage loan to finance a new project, your mortgage ratio must be between 70 and 80%.
This means that your amount to be financed must not exceed €210,000 (70%) to €240,000 (80%) for the bank to accept your project.
- Mortgage ratio at 70% = €210,000 / €300,000 x 100;
- Mortgage ratio at 80% = €240,000 / €300,000 x 100.
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How much can you get with a mortgage loan?
The mortgage ratio is an indicator of the feasibility of the property and not the amount that the bank can grant you. To know how much the bank can lend you, you have to rely on another calculation: that of the mortgage margin.
Two calculations are possible depending on your situation.
Is your property sold?
If you have already fully repaid the loan on the property you want to mortgage, here is how to calculate the mortgage margin:
Mortgage margin = estimated property value x mortgage ratio
Let’s take the same example:
You own a property, the price of which is estimated at €300,000. The bank sets your mortgage ratio at 80%. The mortgage margin then corresponds to:
Mortgage margin = €300,000 x 80% = €240,000.
Thus, in return for mortgaging a property worth €300,000, the bank can lend you €240,000.
Your property is not sold?
If your property is still not settled, the bank, which will have to buy back your outstanding capital, must include it in the calculation of the mortgage margin.
Suppose you have €50,000 left to repay, the bank will have to make the following calculation:
Mortgage margin = (estimated property value x mortgage ratio) – CRD (outstanding principal)
Mortgage margin = (300,000 x 80%) – €50,000 = €190,000.
After studying your file, the bank may grant you €190,000 to finance your new project.
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How to renegotiate your mortgage?
Did you take out a mortgage a few years ago and mortgage rates have since fallen? Renegotiating your mortgage would allow you to take advantage of current credit conditions.
However, for the operation to be interesting, these conditions must be observed:
- You must be in the first third of your credit repayment;
- The outstanding capital must exceed at least €70,000 ;
- The difference between the old and the new rate must be at least 0.80 to 1%.
Once these conditions have been verified, you can either renegotiate your current loan with your bank. Either has your credit redeemed by a new organization that will grant you better financing conditions to count you among their customers. In this case, it will be necessary to provide for the costs of release, since the new bank will have to recover the mortgage for its benefit.
Which bank for a mortgage loan?
You can ask the banking institutions directly to find out if they offer mortgage loans. They will then study your project and make their proposals for you. But the best thing is to be accompanied by a mortgage broker. Constantly informed about the real estate financing market, he can direct you to the establishment that can finance you at the best mortgage rate.
What is the rate of a mortgage loan?
The mortgage loan, which is part of the family of home loans, is subject to the same wear rate as a conventional home loan. As a reminder, the wear rate is set by the Banque de France to avoid abuse.
It may be worth going through a mortgage broker to renegotiate your mortgage loan and thus find the best rate. Expert in the financing, this professional directs you to the establishments most likely to offer you the best loan offer. It also helps you in the constitution of your file to put the chances on your side to be financed. He negotiates the best conditions with his banking partners and obtains you a tailor-made loan. The real estate broker’s support then continues until the funds are released.