Mortgage Products

There isn't the vast range of mortgage products in France as there are in many other countries, neither are they as sophisticated as you may be used to.

A word of warning: Transferring a mortgage from one lender to another or changing a mortgage will incur costs, such as notaire fees and lenders arrangement fees - basically a new mortgage has to taken out and therefore a new mortgage application made with up to date supporting documents. In many cases, if the costs of changing a mortgage outweigh the benefits or savings, a lender will decline from accepting the file - they adhere to the rulings of the Banque de France and will not deviate from them.

The Euribor

Interest rates in France are linked to the Euribor (Euro Interbank Offered Rate).
European banks considered that the introduction, in 1999, of the single currency (the Euro) made it necessary to establish a new interbank reference rate within the Economic and Monetary Union. Mortgages in France are in Euros.

Capital & interest repayment mortgage (variable rate)

Probably the most flexible of mortgage products. You know what your monthly repayments will be. The interest rate applicable to your loan is revised on a regular basis. Should interest rates fluctuate, your repayments stay the same - only the term of your loan is effected. A rise in the interest rate will increase the term of your mortgage. A fall in the rate of interest will reduce the duration of the loan. There is a maximum of 5 additional years that can be applied to your mortgage. You are able to make lump sum payments or redeem your mortgage early without incurring any financial charges or penalties and you can change to a fixed rate at any time.

Capital & interest repayment mortgage (fixed rate)

The repayments are fixed for the whole term of the mortgage. You know exactly what you will be paying each month and how many payments you will have to make. Fixed rates are usually higher than variable rates. Financial penalties can be charged for paying off your mortgage early, selling your property before the end of the mortgage, or even changing to a variable interest rate. Each bank and lender differ with their terms and conditions and it is advisable to check exactly what their financial penalties are.

Interest only

The interest only mortgages that are offered by the French banks are quite different and work differently than what you might expect and there are two products. With both products, the term of the mortgage is divided into two phases.

• During the first phase you pay only the interest on the mortgage.
• During the second phase you pay both the capital and the interest.

Because you are repaying the capital over a shorter period, during the second phase your monthly repayments will suddenly be much higher.

The alternative interest only product, uses your deposit as collateral which is estimated to grow at a set rate. Again the term of the mortgage is divided into two phases.

During the first phase you pay only the interest on the mortgage. At the end of the first phase your collateral is valued and is deducted from the amount you originally borrowed.
During the second phase you pay the capital and interest on the outstanding mortgage. Once again, you will probably find that your monthly repayments will be higher.

However, a pure interest only mortgage was introduced in 2005.
You pay only the interest for the whole term of the mortgage. You repay the capital in total at the end of the mortgage.
It is not readily to everyone as the lending criteria is very strict, but to high net worth clients it is very useful and tax efficient mortgage.

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