Mortgage Options

Buying a real estate property is often the most significant investment in a person's life. To finance this purchase, there are several options for mortgages, each tailored to specific needs and situations. In this article, we will explore the different real estate financing solutions, their characteristics, advantages, and disadvantages, to help you choose the most suitable credit for your project.

Classic Amortizing Loan

The amortizing loan is the most common form of mortgage. It is a fixed or variable rate loan, repayable over a period determined by monthly payments including both the principal and interest. The main features include:

• Amount: The borrowed amount is gradually repaid throughout the loan term, usually between 10 and 30 years.
• Interest Rate: The rate can be fixed (the same throughout the loan term) or variable (adjusted periodically based on reference indices).
• Amortization: Each monthly payment includes a portion of the principal repaid and a portion of interest. The longer the loan term, the higher the total cost of credit.

Interest-Only Loan

The interest-only loan is a mortgage where the borrower only repays the interest during the loan term, with the principal repaid in a lump sum at the end of the contract. This type of loan is often used for rental investments. The main features include:

• Amount: The principal is repaid only at the end of the loan, allowing for interest deductions from rental income in the context of a rental investment.
• Interest Rate: The rate is usually fixed, but as the principal remains constant, the interest paid is higher than with an amortizing loan.
• Final Repayment: The principal must be repaid in a lump sum at the end of the loan, often through the sale of the property or savings accumulated in parallel.

Bridge Loan

A bridge loan is a temporary financing solution used to buy a new real estate property before selling an existing property. This loan provides an advance on the future sale of the current property. The main features include:

• Amount: The bridge loan typically represents between 60% and 80% of the value of the property to be sold.
• Term: The term of the bridge loan is short, usually between 12 and 24 months.
• Repayment: The loan is repaid upon the sale of the existing property. During the loan term, the borrower can choose to repay only the interest (dry bridge loan) or pay a monthly payment including a portion of the principal (asset-backed bridge loan).

Zero-Interest Loan (ZIL)

The zero-interest loan (ZIL) is a financing aid for the purchase of the first primary residence. It is an interest-free loan granted under income conditions. The main features include:

• Amount: The amount of the ZIL depends on the geographical area of the property and the household composition, representing up to 40% of the total cost of the operation.
• Term: The term of the ZIL varies from 20 to 25 years, with a repayment deferral period of up to 15 years.
• Conditions: The ZIL is reserved for first-time buyers under income conditions, and the financed property must be used as a primary residence.

Real-Life Examples

Let's say a borrower takes out an amortizing loan of €200,000 over 20 years at a fixed rate of 1.5%. Their monthly payments will be around €965, with a total cost of credit of €31,600. If this borrower opts for an interest-only loan, they could pay only €250 per month in interest, but will have to repay the €200,000 principal in a lump sum at the end of the loan.

Laws Regulating Mortgages

Mortgages are regulated by the Consumer Code, specifically articles L312-1 to L312-93. These articles specify the obligations of lenders and borrowers, repayment conditions, and mandatory information to provide before taking out the loan.

Conclusion

Mortgages offer a variety of options to finance the purchase of a real estate property. Each type of credit has specific advantages and disadvantages, which is important to understand before committing. Depending on your project, financial situation, and long-term goals, you can choose the most suitable financing solution for your needs. It is recommended to consult a financial advisor or a credit broker to help you make the right choice.