Mortgage Credit: 3 Examples of (Good) Files No Longer Going Through Banks

Conditions for obtaining a mortgage have become more difficult since the beginning of the year. In his Mortgage Credit Monitor on Tuesday, broker Meilleurtaux highlighted three examples of files that no longer pass through banks, due to the rate of erosion.

This is today The main aggressions of any borrower: Debt ratio and wear rate are increasingly shattering the real estate dreams of many French families. Since January, a borrower must owe no more than 35% to pay off their monthly mortgage payments.

According to Meilleurtaux and its Mortgage Credit Monitor, in January 2021, 71% of filings were below the 35% debt limit. A year and a half later, in June 2022, only 59% of the files are below the fateful 35%.

Increasingly excluded corrosion rate

For those under 35%, it is still the rate of wear that can put their project at risk. As a reminder, the usury rate is the maximum rate that banks cannot exceed when applying for a mortgage. This rate includes the nominal rate, the borrower’s insurance, the guarantee, and any administration fees.

Currently, for loans equal to or greater than 20 years, it is 2.57%. Very few, while mortgage rates are rising rapidly. So Meilleurtaux provides three examples of files blocked at the wear rate, of profiles that can still be borrowed.

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Example 1: A 42-year-old couple, with a net monthly income of 3,500 euros, wants to borrow 220,000 euros over 20 years at a rate of 1.85% excluding insurance. The borrower’s insurance rate is 0.40% at a rate of 100% for women and 50% for men. In this configuration, the total APR, including guarantee costs, is 3.04% or 0.47% more compared to the 2.57% wear rate. So the file will be rejected.

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Example 2: Single 30-year-old, with a net income of 2500 euros per month, wants to borrow 150 thousand euros over 25 years. The bank offers him a rate of 2% excluding insurance, to which the borrower’s insurance of 0.27% must be added, plus additional costs. In this case, the annual percentage rate is 2.59%. Once again, the wear rate was exceeded. To hope the file will pass, it will be necessary to play, if possible, on the borrower’s insurance, or hope for an effort from the bank.

Example 3: A 46-year-old couple, whose net monthly income is 8000 euros, wants to get a mortgage of 500,000 euros over 19 years. The bank offers a rate of 1.65% excluding insurance. With a 100% insurance rate for men and 50% for women, the borrower’s insurance rate is 0.30% for the first and 0.40% for the second. The total annual interest rate was 2.67%. Again, despite the comfortable income, the couple’s funding will be denied due to the rate of erosion.

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Often times, cases exceed the wear rate without accounting for bank charges or brokerage fees. Evidence, according to Mal Bernier, a Meilleurtaux spokesperson, that the rate of erosion, an initially protective tool for borrowers, is becoming sheer and simply an exclusion.

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