Property loan: owners, this solution allows you to finance the purchase of a new property

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A mortgage loan allows owners to obtain a new loan to finance the purchase of another property. A solution that can suit atypical profiles or pensioners excluded from a classic loan.

It is very widespread in Anglo-Saxon countries, but much more familiar in France. At a time when access to a property loan has perhaps never been so complicated, a mortgage loan can be approved for households that are already owners, to obtain financing for the acquisition of a new property. This type of loan also allows the owner to quickly obtain liquidity, for investment or to be able to deal with unforeseen circumstances. But what are the features and main interests of a mortgage loan? We will explain it to you.

So how does it work? A mortgage loan is a loan whose repayment is secured by a lien. Your property serves as collateral in case of late payment. If the loan for your property has already been fully repaid, the bank that will grant you the new loan can proceed with the mortgage of your house or apartment. If your loan is still current, the new lending institution will buy back the remaining equity to get the mortgage back. By buying your debt, the bank enforces the right to the mortgage and has priority over the foreclosure of the property if you are no longer able to pay the monthly installments. Once the loan is repaid, the mortgage remains “on file” for another year, during which time the bank remains a default priority before it disappears.

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Backup solution for senior profiles or people with high debt

Let us specify that the mortgage loan is intended for household owners who cannot take out a new “classic” loan. If, in theory, there is no age limit for taking out a mortgage loan, for example, banks very rarely agree to provide long-term loans to pensioners. A mortgage loan can therefore enable pensioners to obtain financing for an investment in a rental or for the purchase of a second home. It can also be useful for households that need cash to renovate their property, but cannot take out a traditional loan due to excessive indebtedness. “Unlike a classic loan, banks will be less cautious about borrowers’ income when providing a mortgage loan, because they use real estate as the main guarantee”explains Cécile Roquelaure, director of studies at broker Empruntis.

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A mortgage loan has another great advantage, because it is not necessary to take out borrower’s insurance in order to use it. “Traditional banks do not necessarily finance atypical profiles and even less households that are too indebted to take out borrower’s insurancepoints out Pierre-Etienne Beuvelet, director of IN&FI Credits. A mortgage loan is a good alternative for them.”

Compare offers to reduce loan costs

As soon as you decide to take out a mortgage loan, the bank starts with a reliable estimate of the value of your property, usually requesting an expert opinion from a real estate expert. If your application for a mortgage loan is accepted, you will receive a loan of 70% to 80% of the valuation of your property, if the loan that made it possible to finance its purchase has already been fully repaid. In this way, the bank protects itself from possible discounting of your accommodation, which can occur, for example, in the case of an urgent sale of real estate.

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But beware, even though it can be advantageous in certain situations, a mortgage loan of course also has some disadvantages. “Costs for this type of loan are higher than for a classic loan. These additional costs are difficult to quantify as they depend on borrower profiles and files., continues Cécile Roquelaure. Therefore, it can be interesting to use a broker to get the best possible rate. Also note, and this is far from negligible, that the notary fees associated with the real estate mortgage are the responsibility of the borrower. An amount that can represent several thousand euros.

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To help you understand the mechanics of a mortgage loan, we recommend you discover a simulation made by Empruntis. The broker accepted Capital example of a couple where both members are 62 years old. They want to buy a house worth 200,000 euros for their main residence. Notary fees are 17,000 euros and filing fees are 5,900 euros. They both receive €3,500 in pensions and have €17,000 in contributions. With a mortgage loan, our couple can borrow 204,900 euros for 25 years at 4.30%. Its debt ratio is 34%. The advantage of a mortgage loan is that you can borrow for up to 25 years and you don’t have to take out borrower’s insurance. However, the other side of the coin is that the loan rate is roughly 0.4 points higher than for a classic loan. The cost of a mortgage loan is 129,831 euros, while the cost of a classic loan is 117,867 euros. Note that our couple must take out borrower’s insurance in order to take out a classic loan, the amount of which is around 25,000 euros. In this particular example, the total cost of the operation is therefore lower if the couple takes out a mortgage loan (129,831 euros compared to 142,867 euros for traditional loan and borrower insurance).

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