The interest rate determines the cost of a home loan , but it is only really relevant when it includes all the ancillary costs involved in granting the funds.
This is known as the overall effective rate (TEG) . It can be fixed, variable or semi-fixed.
The nominal interest rate of a mortgage
Remuneration for the money lent is expressed as a percentage of the amount awarded. To set this nominal rate, the bank uses its own refinancing costs and adds a portion of its fixed costs, the expenses incurred to produce the loan, and possibly a small margin.
In setting the nominal interest rate , it takes into account the borrower’s profile and the risk it presents. A solid record (stable and high incomes, good savings capacity, low debt, large personal contribution, eligibility for homeownership assistance, etc.) makes it possible to obtain very attractive rates.
The duration of the loan is also an essential factor. The faster the refund, the lower the rate. Finally, each company, or even each agency, defines and adjusts its rates during the year according to its commercial policy and its objectives.
The global effective rate (TEG)
To know precisely the cost of your mortgage or to compare several offers on a real estate loan comparator , the nominal rate is not enough. The global percentage rate (APR) or annual percentage rate of charge (APR) is indispensable.
In addition to the nominal interest rate, it includes the rate of the borrower insurance , the handling fees (fixed rate or percentage of the capital borrowed), as well as the expenses of guarantee (surety, mortgage …) For the borrowers having opted for construction or purchase in the future state of completion (Vefa), interim interest and pre-financing costs must be included. More broadly, any charge borne by the borrower for obtaining the credit enters into the calculation of the TEG of the mortgage.
It is capped at the limits of usury in force since January 1, 2017: 3.40% for a fixed rate loan of less than 10 years, 3.35% if the duration is between 10 and 20 years, 3.37% for long loans (over 20 years). For variable rate contracts, regardless of the duration, the threshold of wear is set at 2.83%.
Influence of the rate type on the total cost of mortgage
With a fixed mortgage rate , immutable over the life of the loan, the amount of the maturities is also constant. However, if the clauses of the contract so provide, the monthly payments are potentially flexible (increase or relief). But to lower the rate, only the renegotiation and the repurchase of credit are possible.
A variable or revisable rate fluctuates according to the market. The revision procedures must be included in the contract signed by both parties. These types of loans are generally capped, with an amplitude of variation capped in one direction or the other. Not only is the revisable rate often lower than its fixed equivalent for the same contract, but the borrower escapes prepayment penalties (IRA) if it clears its debt before its term.
Finally, there are semi-fixed rate loans combining fixed and revisable rates. It is fixed and lower than that of a “classic” loan during the first 5, 7 or 10 years and then becomes variable cap. The advantage of the formula is that it allows the borrower to benefit from more competitive conditions than those of the market, then to make a prepayment, avoiding a sudden rise in the rate before the transition to variable maturities. The ideal way to maximize savings with this formula is to negotiate the removal of IRAs from the bank.