The different types of mortgage loans and how to obtain them

The Different Types of Mortgage Loans and How to Obtain Them

Introduction

Purchasing a property is often a major life project requiring substantial financing. For the majority of buyers, this means taking out a mortgage loan. The range of loans available is varied, and it is crucial to fully understand the different types in order to choose the one that best suits your needs and financial situation. This article explores the different types of mortgage loans and provides practical advice on how to obtain them.

The Different Types of Mortgage Loans

1. Standard Mortgage Loan (Amortising Loan)

The standard mortgage loan, or amortising loan, is the most common type of loan. It involves repaying the borrowed capital and interest over a predetermined period, generally between 10 and 30 years.

Key features:

• Fixed or variable rate: The rate can be fixed (remaining the same throughout the loan term) or variable (periodically adjusted according to a reference index).
• Duration: The loan term directly affects the monthly repayment amount. The longer the term, the lower the monthly payments, but the higher the total cost of the loan due to accumulated interest.
• Conditions: Often accompanied by conditions such as mandatory borrower's insurance.

2. Interest-Free Loan (PTZ)

The Interest-Free Loan (PTZ - Pret a Taux Zero) is a zero-interest loan intended for first-time buyers, meaning individuals who have not owned their primary residence within the past two years. It is granted subject to income conditions and is designed to finance the purchase or construction of a primary residence.

Key features:

• Amount: Depends on the geographical area and the number of people in the household.
• Repayment: Often deferred, meaning repayment may begin several years after the loan is granted.

Visit the Service Public website to find out about all the conditions for obtaining the PTZ.

3. Bridging Loan

The bridging loan is a temporary financing solution for homeowners wishing to purchase a new property before selling their current one. This loan provides the funds needed to acquire the new property while awaiting the sale of the existing one.

Key features:

• Duration: Generally 12 to 24 months.
• Amount: Usually between 60% and 80% of the estimated value of the property being sold.
• Interest: Interest can be paid monthly or capitalised (added to the capital to be repaid).

4. Interest-Only Loan (Pret In Fine)

The interest-only loan is a type of credit where the borrower repays only the interest throughout the loan term and repays the capital in a single lump sum at maturity.

Key features:

• Duration: Often shorter than amortising loans, generally between 5 and 15 years.
• Interest: Higher than those of amortising loans.
• Tax advantage: Attractive for investors wishing to deduct loan interest from their rental income.

5. Social Home Ownership Loan (PAS)

The Social Home Ownership Loan (PAS - Pret a l'Accession Sociale) is intended for low-income households wishing to purchase their primary residence. It is granted subject to income conditions and offers reduced processing fees and housing subsidies.

Key features:

• Duration: Between 5 and 30 years.
• Conditions: Requires not exceeding a certain income threshold.

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6. Subsidised Loan (Pret Conventionne)

The subsidised loan is granted without income conditions and is used to finance the purchase or construction of a property intended to be the borrower's primary residence.

Key features:

• Duration: Between 5 and 30 years.
• Advantages: Allows eligibility for the Personalised Housing Allowance (APL).

How to Obtain a Mortgage Loan

Obtaining a mortgage loan requires following several key steps, from preparing your application to finding the best rate and loan terms.

1. Prepare Your Application

Preparing your loan application is crucial to maximising your chances of obtaining financing. Here are the documents generally required:

• Proof of identity: Identity card or passport.
• Proof of address: Recent electricity, gas, or telephone bills.
• Proof of income: Last three payslips, tax notice, employment contract.
• Bank statements: Last three bank statements.
• Proof of personal contribution: Savings, gifts, property sales.

2. Calculate Your Borrowing Capacity

Before applying for a loan, it is essential to know your borrowing capacity, i.e. the amount you can borrow based on your income and expenses. Generally, banks estimate that the debt-to-income ratio should not exceed 33% of the borrower's net monthly income.

3. Compare Loan Offers

To obtain the best loan, it is recommended to compare offers from several banks. You can use online comparison tools, consult mortgage brokers, or directly contact several banking institutions.

Comparison criteria:

• Interest rate: Fixed or variable rate, nominal or annual percentage rate (APR).
• Processing fees: Amount of fees charged by the bank for processing the application.
• Borrower's insurance: Cost of insurance, which may vary depending on the cover taken out (death, disability, job loss).
• Early repayment conditions: Penalties in the event of early repayment of the loan.

4. Negotiate with Banks

Do not hesitate to negotiate with banks to obtain more favourable terms. You can negotiate:

• The interest rate: A lower rate can considerably reduce the total cost of your loan.
• Processing fees: Some banks agree to reduce or waive them.
• Borrower's insurance: You can choose external insurance that is less expensive than that offered by the bank (insurance delegation).

5. Take Out Borrower's Insurance

Borrower's insurance is generally mandatory and covers loan repayment in the event of death, disability, or incapacity for work. It is crucial to choose your insurance carefully based on the cover and cost.

Tips:

• Compare offers: Use online comparison tools to find the most advantageous insurance.
• Check the cover: Ensure that the cover offered meets your specific needs.

6. Obtain Agreement in Principle

Once you have found a satisfactory loan offer, the bank issues an agreement in principle. This agreement is conditional upon the validation of your complete application and the verification of the information provided.

Steps:

• Signing the loan offer: After the agreement in principle, the bank sends you a loan offer that you must sign and return.
• Cooling-off period: You have a cooling-off period of 10 days from the date of receiving the loan offer.
• Signing the deed of sale: After accepting the loan offer, you can sign the deed of sale at the notary's office.

Conclusion

Choosing the right type of mortgage loan and knowing how to obtain it are crucial steps in realising your property project. Whether you are a first-time buyer, an investor, or a homeowner looking to move, it is essential to prepare your application thoroughly, compare offers, and negotiate with banks. By following this advice, you will maximise your chances of obtaining a loan on the best possible terms and you will be able to carry out your property project with complete peace of mind. For further information and personalised guidance, please do not hesitate to contact our agency Coldwell Banker Paris West Residential in Saint-Germain-en-Laye.