Here are the key things to know before taking out a mortgage loan.
1. Which mortgage loans benefit from these protective rules?
The protective rules apply to loans used to finance the purchase of a dwelling or mixed-use premises (professional and residential), whether you own it outright or hold shares or stock entitling you to occupy it. They also apply to loans used to finance the construction of a dwelling or the purchase of land intended for construction. Finally, they apply to loans secured by a mortgage or other security over residential property, for example if you borrow to carry out renovation work.
2. Which mortgage loans do not benefit from these protective rules?
The protective rules do not apply to loans granted to public-law legal entities or loans used to finance a professional activity related to the purchase of real estate. They also do not apply to contracts entered into before a judge or resulting from a recovery plan negotiated with the over-indebtedness commission.
3. What are the lender’s obligations regarding information and advice?
The lender must warn you free of charge if, given your financial situation, a mortgage loan could expose you to particular risks. The lender must assess your ability to repay the loan taking into account your income and assets, including the value of the property being financed, minus the amount of the debt at the time the contract is signed (Civ. 1re, 9 Nov. 2022, No. 21-16.846).
The lender must also offer you an advisory service, consisting of personalised recommendations on the credit agreement or agreements best suited to you. Before making you an offer, the lender must inform you of the information needed to verify your creditworthiness and the deadlines within which you must provide it. The lender must follow precise rules for assessing the value of the real estate.
4. What are the characteristics of the credit agreement offer?
The credit agreement offer must comply with detailed regulations and must include certain prescribed information (C. consom., art. L. 313-24 and L. 313-25). For example, it must state the identity of the parties, the nature and amount of the credit, the date on which funds will be available, and the repayment schedule. The offer must also remind you that you have at least thirty days from its receipt to accept or refuse it. A copy must be sent to the person standing as guarantor for you; otherwise, the contract is void (Civ. 1re, 13 June 1995, No. 93-14.087).
5. What are the rules regarding borrower’s insurance?
Anyone who offers you insurance to cover your mortgage loan must clearly state the cost of that insurance. You may choose an insurance policy other than the one offered by the lender, provided it offers a level of cover equivalent to that of the lender (C. consom., art. L. 313-30). The lender may not refuse your choice or change the interest rate as a result.
6. What are the conditions for early repayment?
You may always repay your loan early, in part or in full, if you so wish. However, if the credit agreement provides that the lender may charge you a penalty to compensate for the interest it will not receive, this penalty may not exceed an amount that depends on the remaining term of the agreement and is set by decree.
7. What is the limitation period for the lender’s action?
Credit institutions that grant you a mortgage loan are considered professionals providing you with a financial service. Consequently, they have a two-year limitation period to bring legal proceedings against you if you fail to repay your loan (C. consom., art. L. 218-2). This period applies to each instalment of the loan, running from the date on which it falls due (Civ. 1re, 11 Feb. 2016, No. 14-22.938).
FAQ
What is a mortgage loan?
A mortgage loan is a credit granted by a bank or other lending institution to finance the purchase of a dwelling or land intended for construction. It may also be used to finance renovation or construction work.
How do you obtain a mortgage loan?
To obtain a mortgage loan, you must submit an application to a bank or lending institution, provide the documents needed to assess your borrowing capacity, and negotiate the terms of the loan, such as the interest rate, the loan term, and the monthly payments.
What is borrowing capacity?
Borrowing capacity represents the maximum amount you can borrow based on your income, expenses, and personal contribution. It is calculated by the bank to determine whether you can repay the loan without financial difficulty.
What is the annual percentage rate of charge (TAEG)?
The TAEG is an indicator of the total cost of the loan, including the interest rate, arrangement fees, insurance costs, and other associated charges. It allows you to compare loan offers in a transparent manner.
What is the typical term of a mortgage loan?
The term of a mortgage loan generally ranges from 15 to 30 years. You may choose a shorter or longer term depending on your repayment capacity and financial objectives.
What are the differences between a fixed-rate loan and a variable-rate loan?
A fixed-rate loan has a constant interest rate throughout the loan term, allowing you to know the amount of your monthly payments in advance. A variable-rate loan has an interest rate that may fluctuate depending on market conditions, which can lead to variations in the amount of your monthly payments.
What is the interest-free loan (PTZ)?
The interest-free loan is a state-subsidised loan designed to help first-time buyers purchase their main residence. It is granted without interest and subject to income conditions, and must be supplemented by another mortgage loan.
How does mortgage loan simulation work?
Mortgage loan simulation allows you to estimate the amount of monthly payments, the loan term, and the total cost of the credit based on various parameters such as the amount borrowed, the interest rate, and the desired term. It is a useful tool for preparing your property project.
What are the arrangement fees for a mortgage loan?
Arrangement fees are administrative charges levied by the bank for setting up the loan. They may vary depending on the lending institution and are generally included in the calculation of the TAEG.
What is borrower’s insurance and is it mandatory?
Borrower’s insurance is an insurance policy that guarantees repayment of the loan in the event of the borrower’s death, disability, or incapacity for work. It is generally required by banks in order to grant a mortgage loan, but you have the option of choosing your own insurance, provided it offers cover equivalent to that offered by the bank.
How do you choose the best mortgage loan offer?
To choose the best mortgage loan offer, compare the TAEG offered by different banks, examine the terms of the loan offer, including arrangement fees, early repayment penalties, and insurance conditions. Use loan simulators to evaluate the different options and consult a financial adviser if necessary.
What are the steps to apply for a mortgage loan?
The steps for applying for a mortgage loan include preparing your file (proof of income, identity documents, etc.), simulating your loan to assess your borrowing capacity, comparing loan offers, and submitting your application to the bank. The bank will then review your file and make you a loan offer if your application is accepted.
What are the penalties for early repayment?
Early repayment penalties, also known as early repayment indemnities (IRA), are charges that the bank may require you to pay if you repay your loan before the end of the agreed term. These charges are regulated and may not exceed a certain amount set by decree.
How do you use a mortgage loan calculator?
A mortgage loan calculator is an online tool that allows you to simulate the terms of your loan by entering information such as the amount borrowed, the interest rate, the loan term, and the desired monthly payments. It provides an estimate of the total cost of the credit and the monthly payments to be made.
What is the role of partner banks in a mortgage loan?
Partner banks are lending institutions with which you can work to obtain a mortgage loan. They may offer advantageous terms through partnership agreements and help you find the financing best suited to your property project.
Need help?
For any further questions or to receive personalised assistance, do not hesitate to make an appointment with our advisers specialising in mortgage loans.
