The amortizable loan is a type of mortgage allowing you to repay the capital little by little. Its interests gradually decrease as they are calculated on the capital remaining due.
What is the amortizable loan?
The amortizable loan is a type of mortgage (probably the most common). It therefore corresponds to the so-called “classic” mortgage. Indeed, you should know that most of the loans granted by banking establishments are amortizable loans.
The repayable loan allows you to repay part of the capital and the interest at the same time. These two costs are grouped together in the monthly payments: the amount you have to pay each month, determined in advance.
For the amortizable loan, at the beginning of the repayment, you mainly pay the interest and less the capital. Then the situation is brought to reverse: you repay the capital more than the interest.
The amortizable loan finances several operations including:
- The acquisition of new or old real estate (main or secondary residence)
- Buying land
- Renovation work
- Commercial walls for professionals
The amortizable loan can be supplemented by another loan (the zero-rate loan, for example).
Read Also: Which loan should you choose to build your house?
How to subscribe to an amortizable loan?
Generally, borrowers get information and compare themselves the different offers offered by banking institutions. Also be aware that application fees, insurance and interest rates can be negotiated. It is also possible to call on a third party or to have a mortgage in order to guarantee a repayable loan. In the eyes of the bank, these elements will appear as solid guarantees that can favor your loan request.
You can therefore, on the one hand, go to your bank: no need to have already taken out a loan before to obtain a bridge loan.
On the other hand, it is highly recommended to be very knowledgeable about the different characteristics of the loan concerned. It is a long period of commitment: it is therefore necessary to have all the keys in hand before taking out a loan.
The real estate broker
If approaching the various banking establishments yourself proves to be difficult, you can always use a real estate broker. Some are even free (the bank pays them).
It helps you:
- build your file (you just need to provide the required documents)
- negotiate favorable rates
- accompany you until the sale is signed in front of the notary
- rework your file in case of refusal
Just like banking establishments, there are also online brokers.
How long for the amortizable loan?
You can get a loan repayable over 10, 15, 20, 25 or 30 years.
A personal contribution of minimum 10% will be requested by the bank. It represents 20% on average of the total amount of the sum borrowed (notary fees included).
In the event that you do not have a personal contribution, a zero-rate loan (for first-time buyers) may be entirely adequate.
You can also use 110% financing to settle the notary fees.
How is the amount of the amortizable loan calculated?
The monthly installment of the repayable loan is made up of a portion of capital repayment. That is to say that part of the interest decreases as the principal repaid. Thus, at the end of the loan, the borrowed capital is fully reimbursed.
In the calculation of this loan, several elements are taken into account:
- the amount requested
- the interest rate (fixed or variable rate credit)
- borrower insurance (required by financial institutions in the event of death or disability)
- application fee
These data will make it possible to assess the total cost of a loan linked to the purchase of real estate.
What are the rates?
The amortizable loan can be at fixed rate or at variable rate.
In the case of a fixed rate, the overall cost of credit, the term of the loan and the monthly payments are established in advance. They remain unchanged throughout the loan period. Calculating the loan amount is thus easier.
On the other hand, if the rate is variable, the monthly payments and the duration fluctuate according to the variations of the interest rate. You therefore benefit from a provisional loan schedule. The interest rate is then reviewed on the anniversary date of the signing of the contract.
Depreciable loan – loan in fine: what to choose?
Often compared to the loan in fine (yet less widespread than the bridging loan), the amortizable loan has a repayment of capital spread over time. That is to say, during the loan period, you repay the principal and interest.
Note that for loans with constant maturities, the share of interest becomes lighter over time, while that linked to the repayment of capital increases.
What is a loan in fine?
The loan in fine implies that you pay the capital in one go: that is, from the interest repayment period which has come to an end. For example, if you borrow $ 200,000, you have this amount for 25 years. You will then reimburse the interest generated by this amount.
Note that there is a personal contribution of 30% of the amount of the loan.
In general, the risk encountered by borrowers who have chosen the loan ultimately is the lack of liquidity to repay the principal at the end of the loan.
What type of loan to choose?
Depending on your profile and the real estate project, there are several advantages and disadvantages.
On the one hand, for the repayable loan, you have an extended loan over time, where interest is reduced as the repayment, allowing you to quickly pay the principal. However, the deadlines are higher. Similarly, if the repayment period is long, the interest will also be higher.
On the other hand, for the loan in fine, the maturities are low and the interest is tax deductible. However, the interest does not decrease during the maturities. In addition, this type of loan is perfectly suited to a rental investment. If you plan to rent and you are highly taxable (the interest paid each month is deducted from the property income), then the loan in fine may be a solution.
Note that for this credit, a guarantee is required for the borrower (ex: life insurance).
Is it possible to transform your loan ultimately into repayable credit?
It is quite possible to change your loan in fine to repayable credit. Only, this operation is done after the repayment of interest. Since a fine loan requires you to repay the principal in one go, staggering the repayment can be an advantage. However, this implies moving to depreciable credit.
If this transaction takes place during the loan, you must then negotiate with your bank. You will have the administrative costs to be reimbursed.