16 August 2015 - Mortgage France News |
Fixed Rate Mortgages in France
Back in August, we were looking at how mortgage rates in France may change in the coming months and years. Those of you who read the article will have noted that it is a great time to take out a mortgage to buy a property in France, given how low the interest rates are right now!
Nevertheless, rates for mortgages in France are expected to start rising over the next year or two. So what are the options available if you wish to protect yourself against these future rate increases?
The most popular option tends to be to take out a fixed rate French mortgage. This is very commonplace among local property buyers. Indeed, mortgages in France are generally fixed for between 20 and 30 years.
And buyers from abroad are often pleasantly surprised at how low fixed rate mortgages can get when they are buying property in France. We can offer fixed rate French mortgages from 1.60% fixed for the life of the loan!
Yet these French fixed rate mortgages should also be approached with caution. The charges involved in refinancing a fixed mortgage in France are very high, and there are often very high penalty fees for borrowers who wish to pay off the mortgage early.
There is, however, an option if you wish to protect yourself against rate increases while retaining a bit more flexibility. It comes in the shape of the capped rate mortgage.
These products offer the flexibility of a variable (or ‘floating’) rate, alongside the security of a fixed rate. The French mortgage rate may rise and fall, but early redemption penalties tend not to apply and the rate is ‘capped’ at a certain level above the original starting rate. This sort of mortgage in France has proved popular among borrowers seeking a happy medium between the variable and fixed rate.
Please note that the behaviour of French variable and capped rates differs when compared with mortgages in, for example, the UK. If the base rate rises, this does not automatically mean that the borrower’s monthly payments will rise. The bank instead adjusts the overall length of your mortgage term. In other words, a drop in interest rates will result in a shorter term, while a rate rise will see the overall term extended. Meanwhile, the monthly payments on your mortgage in France will remain largely the same.
Most borrowers tend to welcome this feature of mortgages in France. It means that monthly repayments should not shoot up out of control if interest rates rise, so you do not have to fret about not being able to afford the mortgage if this should happen. Furthermore, lenders tend to cap the amount a term can be increased or decreased by a length of five years.
If you are thinking of purchasing a property in France, why not speak with one of our expert French mortgage consultants today? They will be only too happy to answer your questions about fixed, variable and capped mortgages, so that you can be sure to choose the right option for your own personal situation.
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