Mortgage rate capping can help
Fixed or variable? Capped rates could offer best of both
WE ARE thinking about taking out a French mortgage to part-finance the purchase of a property in France. With interest rates so low, we are not sure whether a variable or fixed rate mortgage is the right one to go for. What do you suggest? B.Y.
THIS IS a common question for many people at the moment, particularly with interest rates at historic lows. Experts’ views are inconclusive on what will happen to inflation and economic growth, and therefore the outlook for interest rates over the next few years is mixed.
When deciding between a fixed or variable rate mortgage, it is important to think about which are the most important factors for you: low rates, flexibility, peace of mind or a combination of these.
While fixed rate mortgages are more common on the domestic market in France, there are an increasing number of lenders who offer non-resident mortgages with variable rate options. As a general rule, the interest rate on a variable rate French mortgage will be lower than the fixed rate options.
In addition to offering lower starting rates, variable rate mortgages are normally more flexible than the fixed rate options, offering lower (if any) redemption penalties should you wish to pay off a chunk (or all) of your mortgage early.
However, French mortgage lenders like fixed rate mortgages and the fact that your monthly mortgage payments do not change provides them with peace of mind that you will be able to keep up with your mortgage repayments. In these cautious times, this is an important factor.
As a result of increasing competition among French lenders, the fixed rate mortgage options are becoming more competitive.
Another major development over the past couple of years has been the increasing popularity of cap-and-collar mortgage products. These cannot increase or decrease by more than one or two per cent from the starting rate during the life of the loan. Rates start at 2.95%, fixed for the first two years, and then cannot increase above 3.95% for the life of the mortgage.
Furthermore, there are no redemption penalties on these products during the life of the loan. These offers are proving increasingly popular, because they provide the peace of mind of a fixed rate product while giving you the flexibility of not incurring early redemption penalties.
Jo Cowling, of mortgage brokers International Private Finance (internationalprivatefinance.com), answers your mortgage questions. Please send your queries to mortgage@connexionfrance.com
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