Real estate financing: 5 resolutions that pay off

1st resolution

I'm borrowing

The start of 2019 offers us a most propitious ground to indulge in a few financial operations. Lending rates are unlikely to suffer from the global economic turmoil, with oil prices under pressure and the ECB (European Central Bank) raising its key interest rates. Despite this context, loans will remain at their best prices, with rates averaging 1.40% for a 15-year loan. This should encourage borrowing, as conditions have rarely been so favorable. These exceptional values give buyers back their purchasing power, enabling them to reduce their monthly payments, shorten the term of their loan or buy additional square meters.
Let's run a little simulation: a small 0.3 point increase on a €150,000 15-year loan would have the following effects:
- 1.39% rate: monthly payment of €969 with insurance, for a total cost of borrowing of €24,367
- 1.69% rate: monthly payment of €989 with insurance, for a total cost of borrowing of €28,020.
This shows that the financial effort to be made would reach €3,653 in the event of a slight rise in rates in 2019. But there's no risk of this happening in the coming months.

2nd resolution

I renegotiate

In certain situations, it's time to review the financing method. This is the case with a mortgage that was prescribed several years ago. The effects on the wallet can be alleviated by renegotiating the loan to reduce the interest rate and consequently the monthly payment or term.
Just look back to early 2014, when rates exceeded 3%. To measure the effects, renegotiation is like a real shock treatment. Here's how much you save on a 15-year loan of €100,000:
- Rate of 1.39%: monthly payment of €646 with insurance
- Rate of 3.00%: monthly payment of €721 with insurance
Substantial savings, but only under 3 conditions: to be in the first half of the repayment period, to obtain at least a 1-point difference between the initial rate and today's rate over the same term, and to have an outstanding capital of at least €70,000.

3rd resolution

I limit self-financing

Of course, yourpersonal contribution is a determining factor. But you need to make good use of it, and use it as financial security. Bankers appreciate it when capital is set aside to cover unforeseen events. They will not advise you to give up all your savings to buy a home. Especially as the mortgage can be insured to take over in the event of an accident (death, unemployment, disability).
When it comes to finalizing the financing plan, your banker will be able to give you personalized advice on the amount you need to put aside to pay for the property. This is generally between 5% and 10% of the total cost. Since this contribution also affects the monthly loan payment, it's also a question of how much you can afford to live on each month.

4th resolution

I save

Yes, saving also makes it easier to borrow. The effort you make every month to put money aside is a sign of your ability to manage a budget and limit your spending. This behavior reassures your banker, who will be more diligent in obtaining your mortgage. All that remains is to determine the right investment vehicles to ensure that this money yields the best possible return. Of course, the best way to get the best returns is to opt for unavailable savings.
The Plan d'Epargne Logement (home savings plan) is a good example, since it is designed to build up capital. Its interest rate on opening is 1%. The trend in interest rates has diverted it from its original purpose, which was to underwrite a home loan. It should be remembered, however, that the sums paid in remain blocked for 4 years. Each year, payments must reach a minimum of €540. After 10 years, you can't add to it, but the PEL continues to earn interest for 5 years.
Another option is the bank PEA, which allows you to acquire a portfolio of European company shares while benefiting from a tax exemption under certain conditions. It gives rise to the acquisition of shares or units in collective investment schemes (UCITS, SICAVs, etc.). In the event of withdrawal or redemption after 8 years, the life annuity paid is exempt from income tax.

5th resolution

I optimize

This step is akin to asset management, and falls within the remit of the notary. Depending on the project, the notary may advise changes to the spouses' matrimonial property regime to secure the acquisition. Likewise, if he notes the existence of another property, he may recommend selling it to build up the estate. Or he may recommend reclassifying the property as an investment property to generate rental income. A meeting with the notary will enable all possible solutions to be considered.

No increase in bank rates in 2019
Banking professionals have committed to "concrete solutions to the economic and social emergency. This translates into two essential measures:
- no increase in bank charges for individuals in 2019;
- capping bank incident fees at 25 euros per month for the most vulnerable populations. The Banque de France estimates that the measure will benefit 3.6 million people.

In addition, a major consultation will be held between the public authorities and the banking industry to propose new measures in the spring, such as:
- access to credit to make it easier for individuals to finance investments linked to the ecological transition (buying a car, changing a boiler, etc.)

- taking into account the complexities of life's accidents for working people.

Christophe Raffaillac