Are you considering taking out a home loan? Depending on the nature of your project, the type of housing targeted and your situation (personal, professional, financial), you will be able to choose between different types of loans. Indeed: there is not “one” housing loan, but a multitude of loans, adapted to the status and needs of the borrower. This section of the practical mortgage guide will allow you to choose the best type of loan – as well as the ideal rate – to complete your transaction.
Choose your type of housing loan
What type of home loan should you choose? Banks (and other lending institutions) offer several possibilities for taking out a home loan. This differs according to many criteria specific to the borrower:
- The nature of its acquisition project (buying a main residence, making a real estate investment);
- The type of property he wants to buy (new or old);
- Its overall situation (professional status – certain credits being accessible only to certain categories of employees, for example the official house loan – and financial, etc.).
Here is everything you need to know about your mortgage and the different possibilities available to you.
Classic mortgage loans
In the conventional home loan family, the best known is probably the amortizable loan. The monthly installment paid by the borrower is divided in two (principal and interest). It allows him to amortize part of the capital obtained (hence the term “depreciable”) while paying the interest on the home loan as and when. The credit is settled at maturity, after a number of years specified in advance.
This type of home loan can take several forms, in particular that of the smoothed loan (or with stages). This formula arranges the monthly payments of the house loan according to other parallel loans, so as to keep a constant reasonable debt ratio. The modular loan, for its part, gives the opportunity to increase or reduce its repayments in order to accompany changes in its income over time. Finally, the mortgage is a credit secured by a mortgage.
The bridging loan only intervenes in the case of a crossover between resale and acquisition. This type of home loan allows you to buy a new property without having to wait until you have sold the previous one. The principal is repaid when the borrower has received the fruits of his sale.
As for the credit in fine, as its name suggests, it consists in repaying the entire capital at maturity. Throughout the term of the loan, the monthly payments paid include only the interest and borrower insurance costs. It is the savings that will make it possible to settle the loan at the end of the operation. The advantage of this arrangement is that it is supported by low monthly payments and therefore weighs little on debt. It is ideal for rental investment.
Finally, let’s finish with the “no contribution” housing loan. It consists of obtaining a mortgage without having to pay a personal contribution – this percentage of the total sum generally claimed by the banks. It is also called “100% loan” or “110% loan” (because it includes ancillary costs).
Note that, for the past few years, banks have given borrowers the possibility of taking out a home loan over 30 years (compared to a maximum of 20 or 25 years previously). This type of housing loan relieves the burden of excessively high monthly payments, but it has a major flaw: considering its duration, it is very expensive!
Additional aid for housing loans
These conventional loans can be backed by so-called “regulated loans”, eligible under certain conditions. The best known of these is undoubtedly the PTZ, or zero-rate loan: assistance with home ownership which aims to simplify a first acquisition of a main residence. It complements an existing housing loan. Its variant called “eco-PTZ” is intended only for financing energy renovation works.
The social accession loan, or PAS, is a housing loan granted by certain banking establishments in collaboration with the State. Based on several criteria, it is possible through this to finance all or part of the total cost of a main residence, over a maximum of 30 years. In the same vein, the loan under agreement makes it possible to cover up to 100% of the sum necessary for the acquisition of a principal residence, except that it is not subject to means test and that he is entitled to housing allowance.
In addition, there is a very specific type of home loan, set up by certain communities. This is the case of the Paris housing loan, reserved for residents of the capital wishing to buy in their city. Or the “local authorities” credit, through which a community itself grants a loan for the acquisition of new or old housing.
Certain categories of employees can benefit from a very specific type of housing loan, called a “professional loan”. These may include:
- Employer loan, or “1% employer”, which is intended exclusively for employees of private companies with more than 10 employees.
- Official loan, a mortgage offered only to public service employees by certain banks.
Other types of loans
Finally, let us cite some singular (and rarer) forms of mortgage loans. For example, real estate leasing, which concerns only goods for professional use: it is the bank which acquires the property and makes it available to its client, against payment of rent and option to purchase in the future.
Another example: the pension fund loan, thanks to which an employee or an executive can be helped to finance his main residence by his pension fund, against a minimum contribution period. And only for small sums.
Important : be aware that it is possible to combine several types of housing loan. Check with your bank for all of your available options.
Choosing your borrowing rate for a home loan
Beyond the different types of loans available, it is also necessary to define another important point of housing credit: the rate. Let’s go into detail.
Fixed rate housing loan
The interest rate, fixed during the establishment of the home loan, does not change throughout the duration of the loan. So that the borrower knows in advance the amount of monthly payments to come as well as the total cost of the loan, the rate remaining fixed including if he chooses to modify the duration of the loan or the amount of the payments. One also speaks about rate APR, for “annual effective annual rate”.
Note that the fixed rate is most often chosen for a housing loan (at least when it comes to financing a main residence).
Variable rate home loan
As the name suggests, the variable rate is subject to market oscillations. In this formula, the rate negotiated between the borrower and the establishment corresponds to a value determined at a time “T”, that of the establishment of the housing loan. Then, this rate changes according to the variations of a benchmark index – generally Cream Bank, the interbank rate which is authentic within the USD zone.
The rate variation is applied at regular intervals, according to a calendar fixed in advance, for example every 3 or 6 months. The only thing that stays the same is the bank margin applied directly to the interest rate.
This type of rate has major advantages and disadvantages. It allows you to benefit from downward changes in the borrowing rate, without having to renegotiate. In addition, the base interest rate is often more attractive than in the case of a fixed rate. However, depending on the market, this solution can prove to be expensive: if the rate increases significantly over a long period, the borrower will end up paying his housing loan much more expensive and / or by increasing his loan duration.
The variable rate “capped”
Finally, there is a solution that comes between the fixed rate and the variable rate. This is the “capped” variable rate, the principle of which is simple: the borrowing rate determined at the outset may vary, but within the limits of a ceiling fixed with the lending institution (or “cap”).
This ceiling can relate to the rate (with more or less X points of variation) or to the duration of the housing loan (with more or less X years of oscillation). Or a mixture of the two possibilities. Even if the total cost of the mortgage is not known in advance, the fact remains that this type of rate allows you to take advantage of market conditions without taking too many risks.