Mortgage in France
Getting mortgage in France and Monaco
To finance the purchased real estate in France and Monaco, you can get a mortgage of various types, whenever a purchase is registered to an individual or a legal entity such as SCI, a non-profit real estate company or any other companies.
The term of the loan varies from 5 to 30 years, depending on the type of mortgage, the client's creditworthiness and the initial deposit. The deposit usually accounts for 40 - 50% of the value of the acquired property.
The decision to grant a mortgage is based on the borrower's solvency: the debt-to-income ratio should not exceed 1/3 or 33% of his total net income. This threshold is called "le reste à vivre". the balance to cover the costs of everyday life (housing, food, clothing).
Types of mortgage rates:
A fixed-rate mortgage with a constant interest rate with the repayment period (prêt à taux fixe) varies from 3% to 3,5%. The main advantage of this rate is reliability: the amount of monthly payments and the total cost of the loan are known initially. Regardless of market trends, the rate and term of the loan will not change. The fixed rate can be changed only when refinancing a loan.
A variable-rate mortgage (prêt à taux révisable) with a rate that is linked to an index, varies from 1,3% to 2%. The interest rate is linked to the averaged value of the interest rate of the interbank euro market, the European Central Bank interest rate (Euribor - Euro Interbank Offered Rate), which can change every 3-6 months. At first look floating mortgage rates seem more attractive than the fixed interest rates offered by banks. The disadvantage is that it is very difficult to predict the value of market lending rates for a long period due to fluctuations in the market. One of the limitations is the point in the contract "taux capé", which allows you to vary the floating rate at fixed limits ± 1 or 2%.
A capped variable-rate mortgage with a rate that varies but cannot exceed a specified limit. The principle of such a loan allows you to use a low fixed rate for the first 7-10 years. In general, the mixed-rate loans are cheaper than the loans with a fixed rate for the same period of time.
Mortgage loan procedure
The bank has usually 30 days to accept a loan and return the signed agreement to the lender. The loan is then held available for four months. Once a loan has been agreed, a French bank send you a conditional offer (offre préalable), outlining the terms. In accordance with French law, the offer cannot be accepted until after a ‘cooling off’ period of 10 days.
To obtain a loan to purchase the property in France, all documents must be submitted in their original and be translated by an official translator.
French lenders check that you can afford the repayments by examining your debt-to-income ratio. They require that once your new mortgage is taken into account your contractual outgoings (for example rent or another mortgage) do not exceed 33% of your net household income (in the case of high incomes - up to 40%).
The charges of the agency and notary fees are not covered by the loan.
Tax optimization when investing in property in France for the renting purpose
LOAN IN FINE
In case of a classic loan, the borrower pays part of the borrowed capital (principal payment) and the interest monthly. The lenders offer the standard capital and interest repayment mortgage in the form of either straight line or increasing capital repayment plus interest, which is paid off each month over the duration of the mortgage. If the borrower is liable to the new property wealth tax (IFI), he should be aware of the depreciation loan table at the moment when the return value of his real estate exceeds the tax IFI bar.
When paying a loan IN FINE, the borrower only reimburses interest since the principal is usually paid back all at once, at the end of the loan term. To pay the principal, the borrower set up savings associated with an investment product backed by the life insurance by making monthly payments to a saving account or he repays the entire principal in one instalment when the loan expires. Thus, the capital loan remains untouched until the end of the loan period and is paid fully only at the last payment. Therefore, during the loan IN FINE period, the value of the acquired property is considered to have zero value, and IFI wealth tax payment will only occur after the entire loan is paid.
The banks of France and Monaco offer many schemes to optimize the loan. For example, placing money on a saving deposit or investing in financial instruments for the duration of a loan repayment (in average, without special risks at 3-4% per year) can significantly reduce the cost of a loan or even cover it. The larger the deposit, the more profitable it is for the client.
Additional charges include administrative fees of the bank and account for about 0.25% - 0.5% of the borrowed capital. Before making a final decision on a mortgage, banks of France and Monaco can request to undertake an assessment of the purchasing property. The cost of the examination varies from 500 to 5000 euros, depending on the property and appraisal company. You should also add charges of French Notaire amounted to about 1% of the property value when registering it in a mortgage bureau.
Acquisition of real estate through mortgage in France and Monaco can lead to certain tax relieves. The borrower can significantly reduce the annual income tax (rental income) by deducting the interest. He can also minimize or get an exemption from the wealth tax IFI by subtracting the principal from the taxable base for IFI tax calculation.
Property ServiceAzur provides assistance in getting a mortgage and in coordinating activities of all the parties (seller, notary, financial institution, insurance company and real estate appraisal company). We can help you to obtain the best mortgage conditions to a planned deal or refinancing an existing loan.
Example of payments on a long-term mortgage
LOAN IN FINE
When applying for the French mortgage, you will need to provide the following documents:
• Current passport.
• Certificate of family composition.
• Certificate of marriage / divorce (if applicable)..
• Marriage contract (if applicable).
• Certificate of residence or Proof of home address (utility bill, council tax, etc)
• An employment contract
• Last 3 months pay slips
Taxation details :
• Last 2 P60’s or tax returns
• Identification number of the entrepreneur, statute, business card, professional card.
• The last 3 years accounts for the company
• Certified accountant’s letter stating income for last 2 years
• Documents on the ownership of property.
• The property’s value assessed and verified by the notary
• Notice of tax on housing payment.
• Sale and Purchase agreement on property (compromis de vente, contrat de réservation).
• Bank statements for the last three months
• Statement of assets.
• Current rental agreement (if that is your current accommodation).
• Proof of any extra income. You will need to provide tax returns showing rental income, pensions and dividends.
• Proof of the origin of your personal contribution (savings account, bonds etc)
• The settlement table for the repayment of all current loans.
• Bank details.
When buying a property on the Cote d'Azur, Property ServiceAzur provides assistance in processing mortgage at 1.8-2% per year + Euribor and in changing of contracts for utilities. Upon the client request, it is possible to carry out the management of the purchased property.