April 2018 – French mortgage transaction of the month

What’s going on here?

Interest-only French mortgages are still a popular product for customers wishing to purchase properties in high-demand areas such as the French Alps and the French Riviera. This was the case for a customer who decided to purchase a house in a new development in Nice, southern France.

The €2.2 million house boasts stunning views of the bay with great links to the city centre and the airport. The customer opted for a 50-50 split on an interest-only mortgage. One part being at a variable rate of 2.4% and the second on a 2.75% fixed rate; both over a 14-year period.

The product

In this month’s French mortgage transaction of the month we can see the advantages of taking an interest-only mortgage are numerous. For example, low monthly instalments which can in turn maximise profits from potential rental income. Because of the low interest rates across the eurozone, it makes sense to use this opportunity of taking a smaller variable rate. It is a fair bet since recent news showed that the European Central Bank (ECB) isn’t in a rush to take its foot off the pedal on Quantitative Easing (QE) for at least another year, as we pointed out earlier this month. This brings confidence to French mortgage seekers that the golden period of low rates is likely to continue for some time.

For added peace of mind, the client decided to secure a favourable rate of 2.75% on the second half of the mortgage for the full duration of the mortgage. This is a smart way of locking up a low interest rate ensuring that they will know the exact amount of the monthly instalments for this part of French mortgage. In France it is possible to fix rates for longer periods of time than in the UK, because the banks across the Channel look for a long-term commitment over a short-term profit from their clients.

The bigger picture

The combination of the two products gives the client a great deal of flexibility with low rates on both variable and fixed terms. If the costs were to rise dramatically over the coming years, the client could opt to pay off the variable part of the mortgage early. In this case they would avoid  paying any early repayment penalty fees and see off the other half of the loan at the fixed rate.