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Are you thinking of buying a property and trying to understand how to negotiate a house mortgage in France? We understand it is a key decision to make and we want to share with you our lessons learnt going through that process.
Why should I negotiate a mortgage in France?
If you are considering to stay for a long period in France and you have decided to buy a property, it is very common and important to spend some time negotiating your mortgage conditions as it could help you saving a lot of money in the long term. We will elaborate more this point and demonstrate with an example below the impact for your budget.
Most of the loans are negotiated with a fixed rate, guaranteed with a credit insurance (assurance emprunteur). You could request (on demand) a flexible rate and a different credit guarantee.
Who can request for a house credit in France?
In France, foreigners can buy property and request for a bank credit. However, depending on your nationality some additional prerequisites could be requested by banks. Things are easier for EU residents (some document translation may required). For others, you may need to justify your long term stay plans (like getting married to a French citizen, long term work contract, etc.).
What can I negotiate in a mortgage?
- The interest rate. It is the most critical point as it will determine your monthly payments and it is the main contributor to the total credit cost. Let’s see an example: Imagine you are asking 300k€ credit to be paid in 20 years, at a 3,2% rate +0,3% credit assurance . That will represent a monthly payment of 1.769€, or a 124.557€ of total credit cost (total accumulated interests). Now imagine you negotiate the interest rate down by 0,1 points, meaning 3,1% instead of 3,2%. Your total cost will be 120.924€, representing 3.633€ total savings.
- The duration. The interest rate increases the longer the period. Of course, the monthly payment will increase as well if you decrease the time. However, sometimes by just reducing 1 year the duration the rate could drop significantly. So instead of 20 years at 3,2%, you can ask 19 years for maybe 3%.
- The credit insurance. You can negotiate the rate and its coverage. This rate will depend on your health condition and age. A young non-smoking healthy person will pay less than a old smoker one. This is quite logical as the risk is not the same. However, some banks will like you (and your partner -if done in couple) to be 100% covered each. This is not necessary as the requirement is to cover 100% the total credit but not each individual. As example, you could be 50% each instead.
The ‘frais de dossier‘ (administratives fees). This fee could be around 1000€ (depending on each bank). A good example could be our own experience. We had negotiated 0,5 points down (from 1,6% to 1,1%) and in exchange, we have accepted an increase on fees from 700€ up to 1200€. We have saved thousands of €€€ for few hundreds. Not bad ehh?
- The contract clauses could be subject for negotiation as well, such as early payments penalties or the acquisition of your credit by another bank. You may want flexibility on these points.
How to negotiate a mortgage?
It is obvious that your main objective should to keep as low as possible the interest rate. But of course, your bank will push for exactly the opposite. So you can negotiate as follows:
- Getting a better offer from a different bank: Normally this works well with your existing bank as they do not want to lose you as a customer, and as a depositary of cash. If you take a credit from a different bank, they will ask you to deposit your salary with them.
- Subscribing to a financial product from the bank (ex.: home or car insurance, etc) for a better rate exchange. Remember your bank representative will need to escalate to a manager your additional rate cut (so this is extra effort) but in the other hand, he/she has sales objectives, so if you help him/her buying an additional financial product with the condition to decrease the rate, it could be worthy the effort,
- Dual credit lines: some banks could propose 2 credit lines with different duration and rate. We find this quite complex but if at the end you will pay less credit cost or it fits you cash flow better… why not?
How to prepare your interview with the bank?
If you decide to negotiate directly with the bank, it is important to prepare the interview in advance to get all chances on your side.
It will wise to come prepared to the interview with the following elements ready:
- Knowledge about the property. You should know all details about the property that you want to buy: why you want to buy it? (Main residency, for rent, secondary home), the price, any works required, etc.
- Knowledge about the market. Show other bank’s proposals and have the bank improving it. Demonstrate that you know the the market interest rates and conditions.
- Highlight your profile. Show all your sources of income, previous credits successfully paid, your ability to save and invest, your potential within your company, any incoming income, etc. Do not speak too much about your cryptos and any other risky investment. The objective is to create confidence and reassure the banker that you are not a gambler and that you take measured and calculated risks.
- Predefine what’s negotiable for you. As any negotiation, you may want to think in advance what is that you are ready to give up in exchange of any other benefit. As example, maybe the duration of the credit, or subscribing to any of their products.
- Final details: show up to the interview on time and wearing business clothes.
Final thoughts and recommendations
As you have understood, negotiating a mortgage could be time consuming. A good strategy is to request a broker (courtier) service. They will do all this negotiation on your behalf, and most of the time they will have already deals with banks. Of course, they will charge you for this service, but it will be few hundreds euros compared to all the effort & time saved. Besides the fact that they negotiate dozens of credits at once with a bank (volume effect).
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Bon chance!
Disclaimer
Please remember that we are neither financial nor tax advisors. We are just sharing our best understanding based in our own experience. This blog is for educational purposes only. Do not make investment decisions solely based on what you read in this blog. What works for us, may not for you. Do your own research and look for professional service if required. Read our full disclaimer in the ‘about’ page.
Erick, love the way you have explained everything with realistic examples. This article answers almost every possible query an expat can have while buying an apartment in France. Great read!
Eric, very interesting and helpfull article, thanks for it!