The different fees related to loans: What to expect

When you take out a loan, whether it's a mortgage, a consumer loan, or another type of financing, it's important to consider not only the interest rates, but also the additional fees. These fees can represent a significant portion of the total cost of the loan and should be anticipated to avoid unpleasant surprises. This article details the main fees related to loans and provides tips for managing them effectively.

Processing fees

Processing fees are the fees that banks or credit institutions charge for processing your loan application. They cover the administrative processing of your file, the verification of your solvency, and the analysis of guarantees. The main characteristics of processing fees include:

• Amount: Processing fees are generally proportional to the loan amount, often ranging between 0.5% and 1% of the amount borrowed. However, they can be negotiated or even waived, depending on the institution.
• Payable at signing: These fees are usually payable when signing the loan contract, but some institutions may include them in the total loan amount.
• Negotiation: It is possible to negotiate processing fees with your bank, especially if you have a good borrower profile or if you are a loyal customer.

Guarantee fees

Guarantee fees are related to securing the loan for the lending institution. In case of borrower default, these guarantees allow the bank to recover all or part of the loaned capital. The main forms of guarantee include:

• Mortgage: A mortgage is a guarantee taken on real estate. If the borrower fails to repay the loan, the bank can seize and sell the property to recover the debt. Mortgage fees include notary fees, registration fees, and land registration tax.
• Guarantee: A guarantee is an alternative to a mortgage. It can be provided by a guarantee company or a third party. Guarantee fees are generally lower than mortgage fees and may include a contribution to a guarantee fund and processing fees.
• Privilege of lender of money (PPD): The PPD is a guarantee similar to a mortgage, but applicable only to real estate loans for the purchase of an existing property. The fees are lower than those of a mortgage, as they do not require land registration tax.

Borrower insurance fees

Borrower insurance is usually mandatory for high-value real estate loans and consumer loans. It protects both the borrower and the bank in case of death, disability, or loss of employment. The main characteristics include:

• Amount: The cost of borrower insurance is calculated based on the borrowed capital, the loan term, and the borrower's profile (age, health status, profession). It is generally expressed as a percentage of the borrowed capital.
• Options: There are various borrower insurance options, covering various risks (death, disability, incapacity for work, loss of employment). Each option increases the total cost of insurance.
• Outsourcing: The borrower has the option to take out insurance external to that offered by the bank, often on more advantageous terms. This practice is called insurance delegation.

Notary fees

Notary fees are mandatory when buying real estate. They include not only notary fees, but also taxes and duties owed to the state. The main characteristics include:

• Amount: Notary fees represent approximately 7% to 8% of the purchase price of an old property, and around 2% to 3% for a new property. They include land registration tax, registration fees, and notary fees.
• Calculation: Notary fees are calculated as a percentage of the purchase price of the real estate. It is important to anticipate them in the overall budget of the acquisition.
• Negotiation: Notary fees are set by decree, but some additional fees (travel expenses, photocopies, etc.) can be negotiated.

Early repayment fees

In case of early repayment of all or part of the loan, the bank may apply early repayment fees (or early repayment penalties). These fees are intended to compensate for the loss of income for the bank. The main characteristics include:

• Amount: Early repayment fees are generally limited to 3% of the remaining capital due or the equivalent of six months' interest. They do not apply in case of sale of the property for reasons of professional mobility, death of the borrower, or loss of employment.
• Negotiation: It is possible to negotiate a total or partial exemption from early repayment fees when taking out the loan.

Real-life examples

Let's say a borrower takes out a 200,000 € mortgage with a mortgage as collateral. Processing fees could amount to 1,500 €, mortgage fees to 3,000 €, borrower insurance to 0.36% of the borrowed capital (720 € per year), and notary fees to 7% of the purchase price (14,000 €). Altogether, these additional fees represent a significant part of the cost of the loan.

Laws regulating loan fees

Loan-related fees are regulated by the Consumer Code and the Monetary and Financial Code. These texts specify the conditions for applying processing fees, guarantee fees, borrower insurance, and early repayment fees. It is important to understand these provisions to avoid any unpleasant surprises.

Conclusion

Additional fees related to a loan can significantly increase the total cost of the loan. It is essential to anticipate them and integrate them into the overall project budget. By negotiating some fees, choosing suitable guarantees, and comparing insurance offers, borrowers can reduce these costs and optimize their financing. Before signing a loan contract, it is recommended to request a detailed breakdown of all associated fees and to consult a financial advisor to ensure making the best choices.