The duration of the credit affects the cost of your financing. Le Revenu recommends that you do not exceed 20, unless you are a first-time buyer and are on a tight budget.
To choose the term of your mortgage, you must take into account many criteria, starting with your personal profile and your ability to finance.
The best term is the one that allows you to pay off your balance without finding yourself in a difficult financial situation. However, keep in mind that how long you decide to borrow has a direct impact on your mortgage rate: the longer the term, the higher your borrowing rate.
Le Revenu tells you everything you need to know to choose the right loan term.
The term of the loan has an impact on your credit
The interest rate on your loan reflects the risk that the lending bank is taking in extending your credit. The longer the term, the greater the risk to the bank and the higher your interest rate.
On average, it takes 1.40% for a loan of more than 20 years, versus 1.50% for a loan of more than 25 years. By borrowing €200,000 over 20 years at 1.40%, the total cost of your credit, excluding the borrower’s insurance, is approximately €30,000. Cost up to approximately 40 thousand euros by borrowing over 25 years at a rate of 1.50%.
Of course, by borrowing for a longer period, you reduce your monthly payments. Count, if you borrow 200,000 euros, 960 euros over 20 years, 800 euros over 25 years.
Loan term: a choice that must be made according to your profile
If you are financially able to afford large monthly payments, it is better to choose a short-term loan to pay off your bank quickly and get a low interest rate.
In the end, you will save several thousand euros by borrowing for a short period. The more you borrow over a short period, the more principal you pay back each month. So you are less vulnerable in the event of an accident in life or a downturn in the real estate market, that is, in the event of a drop in the selling price.
It is no longer possible to borrow for more than 25 years
Since January 2022, banks have had to implement the recommendations of the High Council for Financial Stability (HCSF), under pain of penalty. Lending institutions can no longer exceed an effort rate of 35% of the borrower’s resources (net income before tax) and the maximum loan term is 25 years.
This term can be accompanied by a two-year deferred period in some cases, particularly for the purchase of new off-plan housing (Vente en l’Etat Futur d’Achèvement, or VEFA). Exceptions are possible but limited.
In fact, lending banks can still break out of the criteria set by the SWF for 20% of credit offers issued each quarter. These exclusions must apply to at least 80% of primary home buyers.