The average term of a home loan is 20 years. But in the face of high rates, more and more borrowers have no choice but to borrow for the maximum term i.e. 25 years. An extension is paid for, particularly in terms of interest.
This is a question all borrowers have asked themselves: Should I take out a 20+ or 25+ mortgage? According to a study by the Credit Logement Observatory, the average tenure of a mortgage was 20 years (240 months) in May. For loans intended for the purchase of the main residence, 65.3% awarded for 20-25 years: The relative weight of this slice of duration increases to a level not seen in the past, the observatory details. Indeed, the percentage of these loans during 2021 amounted to 56.1%.
Extended loan term with higher interest rates
It must be said that since the beginning of the year mortgage rates have risen, which has affected the budget of future borrowers. On the contrary, real estate prices do not fall. In this context, borrowers have three solutions: look for a smaller property, increase the share of personal contribution, or borrow for a longer period. More and more families are turning to 25-year loans, The maximum period allowed by the Supreme Council for Financial Stability (HCSF), with some exceptions.
The actual duration of credit holding, It always fluctuates between 8 and 10 years, as Meilleurtaux believed. Whether you resell your property (and thus the backed loan) to change it or pay it off through an inheritance, for example, few borrowers go to the end of the term. But then concretely, what are the differences, for example, between a loan of €200,000 over 20 or 25 years?
Examples of a loan of €200,000(1)
Over 20 years at 1.55%
In the case of a loan of 200,000 euros over 20 years, the monthly repayment will be 969.70 euros. After 8 years, the borrower has repaid €20,435.28 in benefits
(Out of a total of €32,723 in interest over 20 years). Of the €200,000 representing the value of the property, the borrower repaid €71,851.74. In the event that the borrower resells his property after 10 years, the amount of interest payable is €24,093.15.The amount paid on the property is €91,441.37
Over 25 years old at 1.70% In the case of a loan of more than 25 years, the monthly repayment will be 818.80 euros. If the borrower decides to resell his property after 8 years, he will have already paid €23,582 in interest (on
Total benefits 4,5641.07 € over 25 years old). The property will be compensated in the amount of €54,410.17.
In the event that the borrower separates from his property after 10 years, the amount of interest paid is €28,268.95, for
Property reimbursement in the amount of €69,353.33.
(1) Simulation was performed using the MoneyVox loan calculator.
Average prices, excluding insurance, for over 20 and 25 years at the beginning of June 2021.
The first point: logically, an increase in the term of credit reduces its monthly repayment. As part of a €200,000 loan, a borrower over 20 years old is required to make a monthly payment of €969.70, compared to €818.80 over 25 years.
This is a difference of 150.90 euros per month. A difference is sometimes capital, especially since with HCSF standards (obligation not to exceed the 35% debt ratio), the borrower sometimes has no other choice but to extend the term of the loan. For a monthly payment of €969.70, the net income before deduction at the borrower’s source must be at least €3394 per month, compared to €2865 for a monthly payment of €818.80.A loan over 25 years will always cost more
Extending the credit period is not done by choice, but by obligation
Sandrine Allnier, spokeswoman for broker Vousfinancer confirms. But some can sometimes do it out of convenience, to free up more of the monthly budget or keep a necessary financial surface for another project. In this case, the calculation is necessary. Sandrine Allonier warns that a 25-year loan will always cost more interest and less principal will be paid back after 8 or 10 years. Again, there is nothing illogical because the rate of credit over 25 years is higher than over 20 years. Mortgage Credit: These are the banks that refuse to lend because of the rate of erosion
Still, 8 years later, The 20-year obligated borrower has repaid 36% of his holdings (€71,851) and 46% after 10 years (91441.37 euros). Conversely, at the end of the same 8-year period, a person who has been appointed for 25 years will have paid only 27% of the value of his property (54,410 €) and 34% after 10 years (69,353 €). Regarding interest, on the other hand, a person who borrows more than 25 years has to pay more than the borrower within 20 years of the same term, whether the loan is repaid after 8 years, 10 years or even a term.
A borrower who commits 25 years will consume less principal if reselling after 10 years, acknowledges Crile Roquelaure, a spokesperson for Empruntis. But what matters anyway is the value at which you will resell your property. If you create a file
Capital Gain Compared to the purchase price, this will allow you to amortize your cost of credit. Mortgage: find the best rate