When buying real estate, the question of financing quickly arises. The bank credit solution is essential, but which methods should be favored?
Becoming a homeowner is a strong step for many individuals who, once their decision to buy a property, generally consider applying for a bank loan to help them finance this project. Once the term is fixed according to the income and savings available, two options are available to them: fixed rate or variable rate loans.
Fixed rate mortgage
The majority of French people who decide to borrow to finance their property acquisition opt for a fixed rate loan, that is to say that the interest rate remains the same throughout the life of the credit. The monthly payments and the repayment period are thus fixed in advance and remain identical over time. Every month, borrowers repay part of the loaned capital and interest related to the credit. Because the schedule is predefined, this solution appeals to a large number of new owners who see it as a certain security: the debt they contract is stable and measurable. However, it does not allow you to benefit from any rate cuts that may occur during the loan and thus reduce the total cost of the loan. Except to renegotiate the terms of the loan each time.
The adjustable rate mortgage
Another possibility is offered to borrowers: take out a loan at a variable or adjustable rate. As the name suggests, in this solution the interest rate is not fixed: it varies according to a benchmark index – generally Euribor – which can cause the monthly payments to be paid up or down to repay the ready. The downside: its total cost will not really be known until the end of the schedule. The advantage: in a favorable context, there can be significant savings, either by paying off your loan more quickly, or by reducing monthly payments. But beware, the opposite is also possible, in other words in the event of a rate hike, the monthly payments or the term of the loan may increase. To minimize the risks, it is possible to “cap the loan rate” revisable and to set a ceiling ranging from 1 to 3%, but also to switch to a fixed rate loan when it is decided. An option which obviously has a cost which must be taken into account before taking the plunge.