What is a home loan used for? How much will it cost, and how to determine its ability to borrow? So many questions to ask yourself before getting started.
You are considering a real estate purchase. For this purpose, you may need to apply for a mortgage.
But if this is your first investment, do you really know everything it covers? Together, let’s clear up a few points.
The definition of mortgage
The Consumer Code defines what this credit can finance:
- the purchase of a property dedicated to housing, or mixed use (residential and professional);
- repair, improvement and maintenance work on the property purchased;
- construction work on a dwelling;
When a bank or more generally any institution authorized to do so grants a mortgage, it can request a guarantee:
- a mortgage on the property acquired via credit or another property in your possession, which may be seized in the event of default on repayment;
- a deposit granted by a financial organization undertaking to repay the loan in place of the purchaser, always in the event of default
- a privilege of lender of money: the bank will be compensated in priority if the mortgage is no longer repaid.
borrowing capacity
The bank will estimate the borrowing capacity of the purchaser according to his resources, which are applied to an effort rate comprised in most cases between 30% and 35%.
The capacity includes the loan charges (insurance costs included) and the rent if the purchaser remains the tenant.
The credit institution can then distinguish the amount that can be dedicated monthly to the repayment of the credit on the one hand, and the rest to live on the other hand.
Devices are likely to help with a purchase, such as a zero rate loan (PTZ).
The cost of mortgage
This amount will vary depending on the amount of the loan and the term of the loan. In short, the longer the loan, the more expensive it will be because interest is due on each monthly payment.
Here is what you can consider before applying for a mortgage:
- the overall effective rate (APR) which includes the amount borrowed, interest on the loan, cost of insurance, administration fees, etc.;
- any early repayment indemnities;
- is the offer flexible? In other words, can the monthly payments due be increased or, on the contrary, reduced?
Either way, a 10-day cooling-off period exists once the offer has been received by the establishment.
