20 May 2019 - French Mortgage News | International Mortgage News | Partners News |
How low can they go? French Mortgage rates and hidden cost of life insurance explained
It’s no secret that French mortgage rates are at near-historic lows, even for non-residents. With headline French mortgage rates starting at 1%, what benefit is there of going with a higher rate? However, the rate is not the only aspect of a mortgage that will govern how much it will cost you monthly. There are other costs that can vary wildly between lenders. Whilst in the UK there are very stringent advertising controls to ensure that borrowers can fairly compare the products and are aware of all the associated costs, this doesn’t exist to the same extent on the Continent. It really is advisable to work with a qualified French mortgage broker to ensure that you are getting the most suitable product for your situation, which in most cases will not be the product on the lowest rate.
Life insurance is often a requirement of a French mortgage
To better illustrate this point, let’s consider life insurance. Most of the banks lending to non-residents buying in France will insist that borrowers must take out a life insurance policy to cover the loan amount. We can’t fault the French lenders from a prudence point of view – it is highly recommended that you do have insurance in place to protect the debt in the case of death or terminal illness. However, how this is enforced in practice does not always feel like it has been done in the interest of the borrower. By requiring a borrower to take out life insurance, irrespective of whether they already have a UK policy in place that covers the new French mortgage will materially add to the cost of that mortgage product. This is a hidden cost and won’t be included in the headline rate. And we are not talking a small amount: if you are applying with your spouse or partner, it can add up to 1.4% to the mortgage rate.
All the French mortgage lenders have different life insurance criteria
The various French lenders all have slightly different life insurance requirements, and some are more ‘flexible’ than others. At one end of the spectrum are lenders that will require all parties to be covered for the full loan amount and insist that the borrowers take out the bank’s own policy – which can often include very expensive critical illness provisions. In the middle are those lenders that allow you use a French broker to source the most competitive French-based policy, may only require you to take out enough cover for 50% of the loan amount or will permit you to take out a policy in the UK. And the good news, for those who already have ample cover in place, there is now a lender who has got rid of the requirement altogether.
As an example, let’s take a couple aged 50, borrowing €300,000 over 20 years. They already have more than enough life insurance in place to cover their existing debt and the new French mortgage.
Lender A requires them to take out a policy to cover 100% of the mortgage with the bank’s own provider. Lender B does not have any requirement for life insurance.
|Headline Interest rate
|Mortgage monthly payment
|Additional monthly life insurance payment
|Total paid over lifetime of the loan
By removing the requirement to take life insurance, and despite the headline rate being 0.71% higher, our couple would save themselves €47,280 by taking out the mortgage with Lender B.
Work with a qualified and experience French mortgage broker to get the best deal for you
Life insurance is one of the more obvious hidden costs that can take potential borrowers by surprise, others include the need to place assets under management or paying for a French bank account. And let us be clear, these criteria are not commonly listed on the banks marketing material. The only way you can be sure you are getting the most suitable French mortgage product is to speak to an experienced French mortgage broker that works with all of the banks willing to finance non-resident purchasers. Unlike the UK, there is no electronic sourcing and matching system updated with all the banks’ products and eligibility criteria and requirements. This means that relationships and contacts are key and correspondingly, the volume of business conducted by the broker carries far more weight and influence than in the UK. So, make sure you check with your broker how many banks they are working with and the number of French mortgages they broker to ensure you know you are getting advice based on the whole market. Which allows you to enjoy your new French bolt-hole safe in the knowledge you got the best deal available to you. And you can’t put a price on that feeling!
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