Choosing the right duration of your mortgage conditions the profitability of the rental investment. Faced with the multiple offers of the market, the investor finds himself very quickly in the embarrassment when choosing his loan. What is a mortgage? How to choose a mortgage? Discover through this article what you need to know to choose a mortgage. Learn more at http://metroresearch.org
Real Estate Loan: Definition
A mortgage or real estate loan is a loan made with a bank in order to partially or fully finance a property. It may be the purchase of real estate, such as a principal residence, a second home or a property for rent. You can also make a loan to finance a construction or renovation of your property. The mortgage can be granted in the form of a specific amount, either directly by a bank or through a credit broker.
Real estate credit: Opt for a suitable pricing
The bank or the financial institution sets rates according to several criteria: the amount borrowed, the interest rate and ancillary expenses such as insurance and guarantees, fees, etc. The amount you can borrow is tied to your borrowing capacity, which is at most one-third of your real income. The interest rate is fixed according to the rates on the financial markets, the costs generated by the creation of your credit and the margins added by the bank.
Mortgage Loan: Best Rates
The rates that will be applied to your loan also take into account the duration of the loan. If the term of your loan is relatively small, 7 years, 10 years or 15 years, you will pay higher monthly payments. But if on the contrary the duration of your loan is high, 20 years, 25 years or more, then you will pay lower monthly payments. But a loan over a long period can in some cases come back more expensive, because you will pay interest over a longer period.
Global TEG Effective Rate: How to determine it
In determining the total cost of a home loan, it is not sufficient to rely on the conventional interest rate called the nominal interest rate charged by the bank or the specialized financial institution. There are many other factors to consider as well.
1. The banking fees
Banks also charge fees for the subscription of the mortgage. They can be set by your financial institution in a lump sum manner or at a rate applied to the amount borrowed. They vary from one bank to another and according to the profile of the borrower. It is possible to negotiate them. With a good loan record and good negotiation, you can go so far as to completely eliminate the fees.
2. Warranty fees
A guarantee is required at the time of the loan. It is required by the lender to protect itself in case the lender does not repay his mortgage. The higher the loan, the higher the guarantee. Its cost varies depending on the borrower. The guarantee can be in the form of a deposit (most common form), mortgage or it can be the privilege of lender of money.
3. The borrower insurance
This is a guarantee in case the borrower is no longer able to pay his monthly payments due to a serious problem. The financial institution requires this insurance for cases of death of the borrower, in case of validity or when it becomes bankrupt. In general, the financial institution offers borrower insurance when the loan is signed. But you have the possibility to subscribe to a borrower insurance with another insurer.
3. The delegation of insurance
Assignment of insurance is the fact of taking out a borrower’s insurance other than that of your bank. It is advisable to make a delegation of insurance because in general the insurance offered by the bank that makes you the loan is more expensive. It can allow you to reduce the cost of your credit by a very large amount that can go up to 10000 euros. But if you have already subscribed to the insurance of your bank this is not lost yet. You have a period of 12 months from the signing of the insurance during which you can freely terminate the insurance.
The TEG takes all these parameters into account and is therefore the basic tool for choosing the right mortgage.
Loan repayment: Early repayment
You may decide to pay back part or all of your loan at any time you decide. You will reduce the amount of your monthly payments or close your loan. The financial institution that made you the loan can not oppose it. But she can charge you a fee. This is the Early Redemption Indemnity (ARI), also known as Early Redemption Penalty (PRA). These fees are fixed at the signing of the loan contract. These fees are negotiable.
Investing in real estate: How to choose your type of mortgage
There are several types of home loan that adapt to the needs and capabilities of lenders.
- Real Estate Loan: Depreciable Loan
Repayable regularly by installments, often monthly. You have the possibility to adapt the duration and / or the monthly payments according to your needs.
- Mortgage loan: Loan in fine
You only pay interest during the life of the loan, so monthly payments are low. The capital is repayable at one time, at the end of the loan
- Bank loan: Fixed rate loan
The loan rate is set at the signature and it does not vary. You have fixed monthly payments for the duration of your loan. It is popular because it offers some security.
- Real Estate Financing: Variable Rate Loan
Unlike the fixed rate, here the rate varies. It can increase or decrease depending on a rate taken as a reference, to which a small margin is added.
- Loan with adjustable rate
It is also a kind of variable rate loan. The difference is that here the rate varies according to a financial index. It can be double indexed. That is, the rate varies according to not one but two financial indices. The advantage over the simple variable rate loan is that in the case of the adjustable rate, the rate revision date is set in advance, which allows the lender to prepare financially in the case of a rise in the rate.
- Bank loan: “Capped” rate loan
It is a variant of the adjustable rate loan. The variation in the rate is limited to values known in advance, either for a fixed period or for the entire duration of the loan. In general, the limit of variation is set at +/- 1% to 2%.
- Bank loan: Progressive or declining loan
It can be applied to both fixed and floating rate loans. It is a loan providing for a (gradual) increase or a (regressive) reduction of the rate each year.
- Real Estate Loan: Tiered Loan
It’s a loan that you can contract and start paying later. Basically you can always borrow from a bank even if you already have a loan at another bank.
- Housing loan: Flexible loan
This is another case of the fixed rate loan. You subscribe to a fixed rate loan while having the opportunity to make changes to your repayments. You can increase or decrease your monthly payments. But the changes you can make are limited and fixed at the signing of the contract.
The knowledge of all these types of loans allows you to choose your mortgage. Apart from these “principal” loans, there are also so-called complementary loans. We have among others: the loan at zero rate plus (PTZ +), the employer loan, the subsidized loan, home savings loan, the loan to social home (PAS), the loan agreement, the rental social loan (PLS) , the intermediate rental loan, the bridge loan, the loan for the elderly, the loan to young executives, the loan to future retirees or the leasing of real estate. You can therefore combine several types of loans to ensure a choice of its optimal home loan.
Home Credit: How to choose the best deal
To choose, one must first have the choice. To be sure to choose a mortgage, you must have various loan proposals and be able to negotiate loans.
1. Real estate financing: Bank borrowing capacity
Borrowing capacity is defined as how much you are able to borrow. Before making any loan, you must evaluate your financial situation. Determine the total amount of your income and all your expenses, evaluate your taxes. Consider what you have left once all your expenses are paid, “the rest to live”. All these parameters are to be taken into account in the calculation of borrowing capacity. Most banking institutions calculate maximum borrowing capacity on the basis of 33% of your actual income. That is, you can not borrow more than 33% of your remaining income after subtracting all your expenses.
How to use your borrowing capacity to prepare your loan file?
Once you have determined your borrowing capacity, you have an idea about the loan amount you can get. Depending on that you can estimate your purchasing power and better organize your real estate project. It is also a strong argument to negotiate your mortgage. Indeed knowing your borrowing capacity you will build a good loan record , a reasonable record. You will have more credibility with the banks and the possible negotiations will be easier. The higher your borrowing capacity, the more likely you are to get a good home loan. The threshold of 33% is not a threshold defined by law. It is therefore possible, under certain conditions to obtain a mortgage that exceeds 33% of your real income.
2. Real Estate Financing: Comparing Interest Rates
Go to various banking institutions with your loan file. Get the necessary information and then compare offers to determine the best. In the negotiation of the loan, play the competition. Especially if you have a good loan record, a lot of banks will want to have you. Let them know you have a better proposal elsewhere, they will be more inclined to bargain.
You can also go through a mortgage broker who will arrange to find you a good loan. But be careful because brokers have networks of partner banks, and it could be that he favors his network of partner banks at the expense of the best offer for you. Another solution is to make simulations on the internet.
But be very careful with the various comparisons. Do not compare offers on the basis of interest rates but on the basis of the TEG rate of return. It is the latter who indicates what will actually cost you a loan, all costs included.
Real Estate Loan: What you need to remember
Choosing a mortgage is not as difficult as it might seem. But you will have to have some basics and patience to get the best loan for your real estate project.
To learn more about this topic, read in this video: “How to get a mortgage”