The cost of a real estate loan
The successful negotiation of a home loan implies that the borrower discusses each element of his loan item by item .
Indeed, the total cost of real estate credit does not result from the nominal interest rate alone but from the addition of several elements which deserve the greatest attention.
While some of them have a low impact, such as administrative fees , others can considerably increase the final score, such as insurance .
That is why it is sometimes advisable to use a loan broker whose job is to negotiate each point of your file. But here again, it will be a question of verifying if its help translates into an additional cost or if its action will be transparent.
The interest rate
This is of course the central element of your file. This is actually the point that will most impact the cost of your loan.
However, you will only be able to compare this one if the conditions of each loan are actually comparable. Be careful not to compare for example a fixed rate with a revisable rate . This situation may make you smile, but be aware that the confusion is sometimes very great and that many variable interest rate loans offer a fixed monthly payment.
Also beware of the confusion that comes from different terminologies used in the banking environment. An equivalent rate and an overall effective rate do not mean the same thing. Similarly, you will find loan proposals with a rate with insurance and a rate without insurance.
Even if their amount only slightly affects the total cost, this element of bargaining should not be neglected. They can go from simple to triple depending on the amount borrowed and the bank chosen.
While some organizations charge only the bare minimum, others are particularly greedy. The processing fees of a home loan are only justified for the work done to gather all the documents of the loan application, the analysis and the edition of the preliminary offer.
The fact that the amount is often proportional to the capital borrowed is relatively unfair. Borrowing two hundred thousand euros does not cost more than a loan of € 50,000. Most lending agencies charge a rate of 1% with a ceiling ranging between 500 and 1200 € depending on the bank.
Know in any case that they are quite easily negotiable. Here are some examples of average “acceptable” fees depending on the amount borrowed:
- Up to 120,000 €: 500 €
- Between € 120,000 and € 200,000: € 700
- More than 200 000 €: 900 €
Interim interest is to be paid only in the case of a purchase in the new or for the realization of works that require successive releases. In the case of a construction or the purchase of an off-plan sale ( VEFA ), the builder or the developer foresees appeals for funds as the construction progresses. .
Interest is calculated on the basis of a pro rata temporis. Several solutions are available to the borrower:
- Amortize the loan at the first unlock. This solution prevents the interest from capitalizing but may increase the budget if the borrower continues to pay rent.
- Defer the payment. The deadlines are not settled during construction but upon delivery of housing. This solution avoids having to cumulate credit and rent.
- Another variant of the deferred loan is to borrow an additional amount equivalent to interim interest. Although expensive, this solution has the merit of improving the household’s cash flow.
The borrower insurance
Borrower insurance is the most costly element of credit, which means you have to spend a lot of time on it. The stakes are high because, on the one hand, the sums paid over 20 or 25 years can reach several tens of thousands of euros and on the other hand because the choice of an external delegation requires a great vigilance regarding the proposed guarantees .
The different methods of calculating loan insurance do not always facilitate comparison. Between contracts that apply a borrowed capital rate – which is the case for most group contracts – and external delegations that often calculate the rate on the outstanding capital, the analysis must be done at the level of the total contributions made. .
However, this analysis only applies to equivalent guarantees. A rate of 0.25% for a contract that provides only total permanent disability can not be compared with a rate of 0.30% if the company provides partial permanent disability. In short, a reading of the general conditions is necessary and in particular that related to the exclusions.
Regardless of its destination, a credit must be secured to enable the lender to recover its debt in case the borrower fails. The choice can then be carried out on the real securities such as the Mortgage or the Privilege Registration Lender of Deniers or the mutual guarantee companies.
The decision depends on the real estate project and the personal situation of the borrower. In the context of real securities and in case of purchase in the former, it is better to opt for a IPPD, more economical than the mortgage due to the absence of property tax.
Mutual guarantee companies are now preferred by lending institutions. It must be said that they are more flexible than the real securities and generally cost less than a mortgage registration.
The Crédit-Logement company also offers the advantage of returning the portion of the contributions corresponding to the payment of the guarantee fund at the end of the loan.
Certain employees of the civil service can benefit from a guarantee with certain mutuelles of civil servants like the MGEN which stands surety with the teachers.
The early redemption fees are applied only if you decide to repay part or all of your mortgage loan before the scheduled term. They are generally equivalent to six months of interest, limited nevertheless by the Consumer Code to 3% of the repaid capital .
Their negotiation is always possible but becomes more and more complex. It should be noted that the cost of reimbursement is actually borne by the bank, which only passes on the costs to the borrower. We advise you to use a little strategy to achieve your goals.
For example, you can suggest to your banker to phase out the penalties. Here is an example of what is done in this type of negotiation:
- 3% on the first 5 years of the loan
- 1.5% for reimbursement between 5 and 10 years
- Free next.
If you have significant capital to inject into your real estate project and your business income is comfortable, you do not need anyone to negotiate with different credit agencies. On the other hand, if your file reveals some shortcomings, the assistance of a broker can be very useful.
The contribution of the broker can however impact the cost of credit because many intermediaries who take fees from their clients, which does not prevent them from being more paid by the bank as a business contributor.