French Mortgage Expert’s Team Provides Interest Only Mortgage
This loan does not include any capital repayment at all, the monthly payments only include the interests due on the loan. So the principal balance remains unchanged until the mortgage term and you are expected to repay it.
Interest only mortgages have recently grown in popularity, especially because the monthly payment is cheaper than the repayment mortgage one. In return, the global cost of the operation remains more expensive as the interests are paid on a constant capital whereas, for a repayment mortgage, the interests are paid on a reducing balance.
Interest only home loans are very popular in Anglo-Saxon countries (in UK, more than 40% of outstanding mortgages are interest only loans), which is not the case in France for cultural reasons.
However, French Mortgage Expert provides interest-only solutions for their customers’ projects in France.
Does interest only loan work for me?
Minimize Monthly Repayments Or Afford Purchase an Expensive Property
Many reasons can make you think interest-only is a smart option. Its purpose is to minimize monthly repayments or, alternatively, to afford to purchase a more expensive property. This solution can allow you to make additional principal repayments when you have the available funds, or redirect your money on other investments.
One of the main reasons for an investor to choose the interest-only mortgage in France is the tax benefits. Indeed, the interests paid are deductible from the renting incomes taxes and are more important in an interest-only loan than in a repayment mortgage. This also applies to the French wealth tax (“ISF” = Impôt de Solidarité sur la Fortune), which is a tax based on the assets held in France – the higher the debt the more you can reduce your asset values.
Also, for disciplined investors, investing the money saved into something with a higher return than the interest rate of your home loan is a good way to repay the loan at the end of the term and to reduce the total cost of the property project.
Advantages
- Reduce your monthly payments
- Purchase a more expensive property
- Free up cash flow
- Flexible payment schedule
- Tax benefits
Disadvantages
- Mortgage cost
- Full capital amount to repay at the end
- Property to sell if no capital at the term
- Risk of falling property prices
How to Obtain an Interest Only Mortgage in France?
French Mortgage Expert’s Solutions to Residents and Non-Residents
French Mortgage Expert provides solutions to residents and non-residents for their property project everywhere in France. Thanks to our partners, French Mortgage Expert offers you 2 different interest-only solutions:
Interest Only Mortgage With No Savings Plan Required
If you want to opt for a pure Interest only mortgage, with no investments required, our partners can allow you to borrow until 75% of your property value. The guarantee will only be registered on the property to purchase.
Only interests are monthly paid by the term of the loan, with deferred payment period possible if needed. The principal balance will be due at maturity, or may be repaid in a classical repayment mortgage.
It is also possible to place the guarantee on another property owned in France.
Interest Only Mortgage with Savings Plan Required as Guarantee
As your monthly installments only pay the interest charged on your mortgage, you are not actually reducing the mortgage debt itself. Some banks will demand that you arrange some other way to repay the loan at the end of the term, with an investment or a savings plan. Furthermore, combining an investment and an interest-only mortgage can also be a part of your investment property strategy, providing tax and gearing benefits.
Our partners allow you to borrow until 100% of your property value with an interest-only repayment, and will ask you, as collateral, to set up a private investment. Depending on the bank, the collateral will be equal to 20% to 50% of the mortgage amount.
Savings plan agreed with the bank may be an asset portfolio, securities or a life policy contract (the French “Assurance-vie”).
Repayment Options
- Interests are monthly paid based on a fixed rate or a variable rate (Euribor 3months or 1year indexes + margin). Banks also offer mixed rates, with a first period of fixed rate, thereafter variable rate for the remaining term.
- You can convert the mortgage at any time into a repayment mortgage with a classic fixed rate for the remaining term.
- Duration generally between 5 to 15 years, followed by 10 years repayment period, if necessary, to enable you to repay the capital.
- Capital repayment can be realized at any time with your personal savings, or by selling the property.
