With the rise in mortgage rates, the question arises of the duration and amount of the loan. Should the credit envelope be reduced by releasing all of one’s savings? Not sure.
If you are a poker lover, the all-in has no secrets for you. But when it comes to real estate credit, what strategy to adopt? Putting all your savings on the table to borrow as little as possible or, on the contrary, to borrow as much as possible? The question worth asking, especially in this period when real estate rates are rising.
For Mal Bernier, spokesperson for the broker Meilleurtaux, the answer is clear: The reality is that borrowing rates, even if they rise to around 2%, remain very low with inflation which is much stronger, therefore borrowing as much as possible remains the most attractive option. A vision shared by Pierre Chapon, co-founder of the broker Pretto: Despite the increase, if we look at the long term, the rates remain very attractive today.
Still negative real interest rates
While interest rates for home loans are fixed, those for our savings products change with inflation. Calculated at 5.9% over 12 months in June according to INSEE, the latter affects many households but also impacts your savings. For the time being, returns on global savings have not yet increased, but logically they will progress in August, supports Pierre Chapon. If we compare mortgage rates to the return on savings, normally it remains more interesting to borrow as much as possible. Real interest rates remain negative.
Livret A 2%, LEP 4.5%: the theoretical rates for your savings from August 1st
The rule would therefore always be to put as little personal savings as possible. In fact, today, many people are all the same forced to dip into their savingseither because their borrowing capacity has decreased with the rise in interest rates, or because otherwise the project is not viable, tempers Mal Bernier.
An obligation observed since the implementation of the new standards which impose, except exception, a debt ratio not exceeding 35% for a maximum period of 25 years. Some borrowers are forced to put more so that the monthly payment is not too high. If we observe an increase in the personal contribution in recent years, it is not because the banks ask for it but to go below this bar of 35%, confirms Pierre Chapon.
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Limit your personal contribution
Those who have a choice, on the other hand, would be advised not to go beyond a certain threshold. If the majority of borrowers wishing to buy their main residence must come with a personal contribution of 10% to cover the ancillary costs (application fees, notary fees, etc.), adding a little more is a good idea. There are banks that will offer a bonus rate if the borrower shows up with the 10% application fee plus 10% of the value of the property, asks Pierre Chapon. Bringing up to 20% of the value of the property can be interesting, but beyond that, the rate does not change much.
It would therefore be better to keep your money for an impromptu expense such as a change of boiler, for work or for a future real estate project: Keeping savings is the possibility of making a contribution for a rental investment, recalls the co-founder of Pretto. To put more than necessary on a first real estate project would be a shame, it may prevent you from doing a second.
Whatever your decision, you will be asked to keep a precautionary savings to face a hard blow. It is therefore advisable to set aside the equivalent of three months’ salary, on a booklet A for example, where the money is easily unlockable.
Real estate loan: find the best rate