Although it is always essential to weigh the pros and cons, the duration of mortgage loans has greatly lengthened in recent months and now allows borrowers to borrow over long periods. We are now talking about a 30-year commitment, provided of course that the credit remains adapted to the borrower’s situation. This solution could thus allow more modest households to realize their dream.
Today, no household is satisfied with the credit offered by its bank to buy movable property. Indeed, the French no longer hesitate to make competition work or to go through a broker in order to find the most advantageous proposal. This gymnastics, more and more applied for the renegotiation of the already contracted credits costs very expensive to the banks. Whether in terms of credit or insurance, the legislation has evolved a lot in recent years and is very favorable to the borrower. To cope with this situation, the banks have entered into a trade war, and have not hesitated to soften their borrowing conditions, and to lengthen the duration of their loan.
A longer duration, but at what cost?
The longer the duration of financing a mortgage, the more the interest rate that is attached to it increases since the risk premium will naturally be higher for the lender. Thus, for an example of financing of $ 150,000 over 20 years, the average property rate will be 1.30%. Over a 25-year period, this same non-insurance project will have a rate of 1.60%. The cost of the credit is $ 20,425 for the 20-year project, and it is estimated at $ 32,093 over 25 years. The cost therefore naturally increases by 57% for a difference of five years. Thus, if the credit period is further increased, future buyers will more easily be able to realize their project with lower monthly payments, but their credit will have a fairly substantial final cost.
Very concretely, traditional banks will accept a file over 30 years provided that it can also be financed over a period of 25 years. This reasoning allows the financial institution to limit the risks borne by the borrower, particularly in the event of future budgetary tensions.
With an average inflation of 2.1% in 2018 and relatively low interest rates, it is logical to note that the durations of the loans are getting longer. For a mortgage, the part financed by the loan is today at 80% of the amount of the acquisition against 76% in the third quarter of 2017. In such a context, the banks are always very aggressive and do not hesitate to fight to satisfy borrowers.