All of the mortgage products we offer for purchasing investment properties in France are in euros and are all tied in some way to Euribor. When choosing your mortgage, you will want to consider the:
Typically, the banks will require a cash down payment of 20% plus closing costs of the total of the purchase price, renovation costs (If required). This can potentially be reduced to 10 - 15% depending on your situation and whether the property is a leaseback or a classic apartment which needs renovation.
For most products, you will not be able to finance the notaire fees. It's important to note that if the bank has an independent valuation of your home done and the amount is lower than your purchase price, the bank will only finance 70% to 85% of the total of the valuation amount (not the price you paid), renovation costs and mortgage fees.
Purchase price - This includes the price of your home.
Renovation costs - It is possible to finance the renovation of your investment as in the case our high end 'My Flat In Paris' Product. The bank may require estimates from licensed contractors and disperse the funds to them directly once the renovations begin. In the case of the 'My Flat In Paris' this is handled by Antoine. 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. Budget on 6 to 8% of the purchase price for properties older than 5 years and 5 to 6% for properties less than 5 years old.
Type of interest rate: Variable or Fixed or a 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 based on the Euribor rate.
Many banks in France 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. This is a very interesting option at present as it locks in your monthly repayments which is usually the main variable in a leaseback or classic buy to let investment with good rental income projections
Most products give you the option to convert to a fixed interest rate at any time. Solas Financial also offers products that allow you to choose your monthly payment amount or delay payments until you apartment is completed.
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. We are now also beginning to see products with a maximum fixed interest rate with the product tracking Euribor
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 loan. The advantage of interest only loans is that you conserve your ability to spend or make other investments each month. For example, you can put the money you save into another investment that generates a higher rate of return than your interest rate on the loan. 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. Generally Interest only loan in France and indeed Ireland and the UK a more expensive than Amortised capital and interest repayment loans.
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 up to 3% of the amount reimbursed. It is important that you understand the terms and conditions of pre-payment for the product you choose.
