Should we get a fixed mortgage?
Are fixed-rate mortgages a sensible option in France? Our mortgage expert explains
Jo Cowling, of mortgage brokers International Private Finance (www.internationalprivatefinance.com) answers your mortgage questions. Send queries to mortgage@connexionfrance.com
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WE ARE thinking about buying a property in France and are looking at the options for a French mortgage. With interest rates likely to rise over the next few years we would like to consider a fixed-rate one, but I understand these often have redemption penalties if you look to make early repayments.
A. and E.H. Bristol.
With the outlook for interest rates in the Eurozone unclear, fixed-rate mortgages are increasingly popular.
Traditionally, the French domestic market caters well for borrowers looking for this extra security. Indeed, as a general rule when French residents take out a mortgage, the rate will tend to be fixed for the life of the mortgage.
The main appeal is that it gives the buyer total peace of mind that their monthly mortgage payments cannot increase later in the term.
Due to their popularity, French lenders always offer a wide range of fixed-rate mortgage options to potential borrowers.
It is true that the majority of these products do have redemption penalties during the fixed rate period.
However, the conditions available for new clients are improving thanks to increasing competition in the market.
In order to combine the flexibility of a variable rate mortgage with the security of a fixed rate, a number of lenders are starting to offer “cap and collar” deals.
The interest rate you pay is fixed for an initial period (often two years) and then cannot increase or decrease by more than 1% during the life of the loan. This affords the peace of mind that the interest rate applicable will never exceed a certain level, while generally still allowing the borrower to make unpenalised overpayments.
This flexibility on redemption penalties is particularly important if you are looking to make overpayments on your mortgage, in order to reduce the sum of capital outstanding.
If this is an approach that you would like to consider, be aware that many lenders impose a minimum on the size of lump payment made – typically they ensure that the sum paid equates to no less than 10% of the original loan amount.
