When buying real estate, the question of financing quickly arises. The solution of bank credit is essential, but which methods should be favored?
Becoming an owner represents a major step for many individuals who, once they have made the decision to buy a property, generally consider applying for a bank loan to help them finance this project. Once the duration has been set according to the income and savings available, they have two options: fixed rate or variable rate loans.
The majority of French people who decide to borrow to finance their real estate 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 the same over time. Every month, borrowers repay part of the capital loaned and the interest linked 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 incur is stable and measurable. However, it does not allow you to benefit from any rate reductions 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.
Another possibility is available to borrowers: take out a variable or revisable rate loan. As its name suggests, in this solution the interest rate is not fixed: it varies according to a reference index – generally Euribor – which can vary upwards or downwards the monthly payments to be paid to repay the ready. The downside: its total cost won’t really be known until the end of the schedule. The advantage: in a favorable context, there can be significant savings made, either by repaying your loan more quickly or by reducing the monthly payments. But beware, the reverse is also possible, in other words in the event of a rise in rates, the monthly payments or the duration of the loan may increase. In order 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 that obviously has a cost that must be taken into account before taking the plunge.
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