Which French mortgage is right for me?

Banks in France offer a wide variety of French euro-based mortgage products.

When choosing your French mortgage, you will want to consider the:

• Duration of your French mortgage
• Amount of your down payment
• Type of interest rate: variable, fixed or a hybrid (combination of the two)
• French mortgage type: amortised vs. interest only
• Early repayment fees

Duration of your French mortgage

Most French banks offer mortgage durations of anywhere between 5 and 30 years. The general rule is the longer the mortgage duration, the lower your monthly payments will be.

Amount of your down payment

Typically, French banks will require a cash down payment of 20% of the total of the purchase price and renovation costs for exisiting French property. This can potentially be reduced depending on your individual financial situation.

Other cash outlays required include the filing fees and legal fees :

• Filing fees – this includes the bank’s processing fees and French mortgage broker fees.

• Legal fees - this general term includes taxes, notaire fees and mortgage registration fees to place a first charge on the French property (“frais d’hypothèque”), all of which are set by the government. Count on 6 to 8% of the purchase price for properties older than 5 years, 4% of the purchase price including VAT for leasebacks and 3 to 5% for new construction or properties less than 5 years old.

Type of interest rate : variable, fixed or hybrid (combination of the two)

Variable interest rates are based on adding a percent bank margin to an interest rate index like the “Euribor 3 month”. The advantage of variable rates is that they are usually the lowest in the market. They are typically fixed for the first 3 months to 1 year then go up or down as the market index moves. Many banks offer variable rate mortgages that limit the risk of a rise in interest rate with a cap on the interest charged or monthly payment increase allowed. 

A fixed interest rate mortgage has an interest rate that remains fixed for the life of the mortgage. The advantage is that you know exactly what you must pay every month. The disadvantage is that you pay a higher interest rate for this security.

A hybrid interest rate has both variable and fixed elements putting it in the middle in terms of risk and known cost.

French mortgage type: amortised vs. interest only

Amortised French mortgages, also known as capital repayment mortgages, require you to make payments to the bank including both interest and a portion of the amount you borrowed each time. You pay back the entire amount you borrowed over time.

With interest only French mortgages, you pay only the interest expense for an initial period, and then you either repay the amount borrowed in full or switch to an amortised (repayment) mortgage. The advantage of an interest only mortgage is that the monthly payment is considerably smaller because you are not repaying the capital. This often means the rental income on your French property can cover the mortgage payment. An interest only mortgage also makes sense if you expect the value of your French property to rise substantially over time and you plan to sell before you would have paid off the mortgage in full.

Early repayment fees

Many variable rate mortgages allow you to pay down your outstanding capital at any time without penalty. Other products let you reimburse up to a certain amount each year without penalty. Most fixed rate mortgages do charge an early repayment penalty of six months interest on the amount prepaid. The minimum repayment amount is often 10% of the intial mortgage amount.

Which mortgage is right for me? All of the mortgage products we offer for purchasing homes in France are in euros. When choosing your mortgage, you will want to consider the: duration of your loan amount of your down payment type of interest rate: variable or fixed or a hybrid type of loan: amortised vs. interest only early re-payment fees Duration of your loan It’s possible to borrow for a duration of anywhere between 5 and 30 years. The longer the loan term, the lower your monthly payments will be. Amount of your down payment Typically, the banks will require a cash down payment of 20% of the total of the purchase price and renovation costs. This can potentially be reduced to 10% depending on your situation. For leasebacks we are able to finance up to 100% of the price ex VAT but including notaire fees. Other cash outlays required include the mortgage fees and closing costs. Purchase price – for classic properties, this includes the price of your home and the real estate agent fees. In some cases, if you exclude the agent fees from the purchase price in your compromise de vente (which will lower your notaire fees), you will not be able to finance the agency fees. Talk to your notaire about those options before signing the initial purchase agreement. For leasebacks, this is the price on your reservation contract. In some cases you must fund the VAT and then reclaim it after the property is constructed. In other cases, the developer funds the VAT. Renovation costs – it’s possible to finance renovation for classic properties. The bank may require estimates from licensed contractors and disperse the funds to them directly once the renovations begin. The banks don’t expect you to know your exact renovation plans at time of purchase. You can get a general estimate from one contractor then choose a different contractor to do the work later. Mortgage fees – this includes the bank’s processing fees and broker fees. Closing costs this general term includes taxes, notaire fees and mortgage registration fees (“frais d’hypothèque”), all of which are set by the government. Count on 6 to 8% of the purchase price for properties older than 5 years, 5% for leasebacks and 3 to 5% for new construction or properties less than 5 years old. Type of interest rate : variable or fixed or hybrid Variable interest rates are based on adding a margin to an interest rate index like the “Euribor 3 month”. The advantage of variable rates is that they are the lowest in the market. They are typically fixed for the first 6 months to 1 year then go up or down as the market index moves. Many banks offer variable rate mortgages that limit the risk of a rise in interest rate. For example, the interest rate increase can be capped or limited to a percent of inflation. The monthly payment amount can also be fixed. If interest rates go up, the term of the loan is extended rather than raising the monthly payment. Most products give you the option to convert to a fixed interest rate at any time. France Home Finance also offers products that allow you to choose your monthly payment amount or delay payments. A fixed interest rate loan has an interest rate that remains fixed for the life of your loan. The advantage is that you know exactly where you stand throughout the duration of the loan. The disadvantage is that you pay a higher interest rate for this security. A hybrid interest rate has both variable and fixed elements putting it in the middle in terms of risk and known cost. Type of loan: amortised vs. interest only Amortised loans require you to make payments to the bank of both your interest and a portion of the amount you borrowed. You pay back the amount you borrowed over time. With interest-only loans, you pay only the interest expense for an initial period, and then you either repay the amount you borrowed in full or switch to an amortised (repayment) loan. The advantage of interest only loans is that the monthly payment is considerably smaller because you are not repaying the capital. This often means the rental income on your property can cover the mortgage payment. An interest only loan also makes sense if you expect the value of your home to rise substantially over time and you plan to sell before you would have paid off the loan in full. Early re-payment fees Most variable rate loans allow you to pay down your loan at any time without penalty. Other products let you reimburse up to a certain amount each year without penalty. Most fixed rate loans do charge an early repayment penalty of six months interest on the amount prepaid. It is important that you understand the terms and conditions of pre-payment for the product you choose.