French Mortgage Options

You can choose a variable rate linked to the Euribor interbank rate. Some banks will make the term the variable component rather than the monthly repayments; others will alter the repayments as the EURIBOR moves and leave the term fixed. You can choose a variable rate that has a cap though you will pay a slightly higher rate for this security.

Lastly you can choose a fixed rate – either for defined time periods or (unlike in the UK) fixed for the entire term of the mortgage. Rates are generally higher the longer the term or the higher the loan to value.

Once we have discussed your financial needs and situation, we will offer you the choice between fixed or variable rates. This is a more difficult choice to advise you on; this requires you to take a view on whether interest rates in Europe will move up or down over the loan term. A few things to note:

• Fixed rate loans will generally have exit penalties for early repayment, though these can be discounted in some cases.

• Some banks will fix the monthly repayment from day one so you always know what is going out of your bank account every month, though this is not a fixed rate. If the index goes up or down they will alter the term of the loan and will report it to you every year on your annual mortgage statement.

• Some other banks will provide a capped product, which means there will always be a ceiling on the rate that you get at the start.

• Finally, you could also benefit from a fixed rate during the first years, and then on to a variable rate (with or without a cap).

This question often arises when buying a property in France, especially when you are making an investment, when you expect the rents received to cover the expenses of the mortgage, bills, etc… It is sometimes easier to keep the monthly payments low if you know that at the end of the mortgage you are likely to sell this property, or another, to repay the capital borrowed; if you know that you have a savings plan on the side.

Obtaining an Interest only product makes sense if this is your intention. However, an interest only mortgage implies showing the bank you have the equivalent (and more!) of net assets in other investments/equity. We now have more options and access to hybrid products which we can look into together, to satisfy both your needs and the bank’s expectations. Please contact us for further information.