Saturday, October 3, 2009

French mortgage interest rates down 1% in 12 months

A year ago - according to an article in today's Le Figaro - it was impossible to secure a French mortgage at a rate of less than 5% over 15 years, rising to 5.5% over 20 years. Today's reductions of 1% may at first seem scarcely worthwhile, yet over time they can represent a saving of up to 10% on the cost of borrowing to buy your house or apartment.

Taking a typical loan of 100,000 euros over 20 years, monthly repayments fall to around 600 euros a month, with a mortgage negotiated at 4%, as opposed to 660 per month at the rate of 5.15% which was typically proposed by the banks just 12 months ago.

The reduction in interest rates also means that you can borrow more with the same level of monthly repayments, normally required by French banks not to exceed one-third of your nett income. Monthly payments of 1000 euros per month over 20 years would, just one year ago, have allowed you to borrow up to 150,000 - today you could borrow 165,000 under the same conditions.

According to mortgage brokers Capfi, cited in the article, it is possible today to negotiate a mortgate over 20 years at a rate of 4% or 3.75% over 15 years, in both cases excluding the cost of insurance.

While variable rate mortgages have always been regarded as risky but attractive - currently offered at 2.60% today - they can be capped at 1% or 2% above the starter rate, which is this case could be around 3.5% (capped at 4.5%) to reduce the element of risk.

If you expect to sell your property within a few years, the variable rate option can be particularly attractive, when linked to the prospect of capital gains on the sale, which are free of tax if your property is classified as your principal residence.

As always, it pays to shop arround for the best deals. And according to Capfi, todays attractive rates should remain on offer 'for at a least a few more months'.

(Source Le Figaro, Hervé Rousseau, Saturday 2 October 2009).