English Version

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A mortgage is a loan lent by a financial institution such as a ban generally use for the purchase or the construction of real estate.

It is usually structured as long ter loans with some pratical (amont of monthly payments, personal down-payments) and technical (guarantees, mortgage insurance) aspects contracted by the borrower.

Guide of a mortgage to cross-border workers from « Mon-taux.com » aims to guide you through the different steps to currency fund for cross-border workers.

 

Requisition form

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I- Project development

Calculate your borrowing capacity

Determine financing period

Personal down-payment

II – Different funding solutions

Fixed rate

Variable rate

LIBOR history

The zéro rate loan (PTZ+)

Mix different types of interest rates

III – Guarantees

The “privilège de prêteur de deniers” (PPD)

Mortgage

Surety organism

Joint liability security

Currency hedging

IV – Credit life insurance cross-border borrowers

V – Legal obligations

Scrivener law

Neiertz law

Advanced prepayment

 

 

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I – Project development

It is important that the prospective buyer gets information about his borrowing capacity, his purchasing power, the amount of monthly payments due and the duration of his funding which will help him to begin his funding search more easily. 

Your consultant “Mon-taux.com” is here to answer your questions, advise you, and establish a financing plan that matches your expectations and your situation. 

Calculate your borrowing capacity:

Before starting real estate project, it is necessary to calculate your borrowing capacity. 

To obtain this result, the future monthly payments of the mortgage + the current loans (personal credit, alimony, etc.) have to represent up to a 1/3 of the annual net income (salary, pension, rental income…). This calculation is theoretical, however, it is useful to cumulate your current rental to your current saving effort. If this amount is close, or superior to the future monthly payment, you will be assured that you can get your project off the ground and running while keeping the same lifestyle. In the opposite, you could obtain the financing, but it will be necessary to make sacrifices. 

 

 

Paul Smith is a cross-border worker and he receives a net monthly salary (taxes deducted) of CHF 4’500.-. He has no other loan, he can pay CHF 1’500.- per month, which represents a mortgage of CHF 270’000.- at 3% over 20 years.

Please note that the rate of exchange is provided as a rough estimate and must be less favorable than than the current exchange rate in order to prevent the exchange movement EUR/CHF.




Determine financing period:

With the rising prices of real estate these last few months, we have noticed an important extension in the duration of the mortgage. This extension might allow to fulfillment of projects but it is directly linked, to a sharp rise in loan costs. Indeed, the longer the loan duration, the less the capital reimbursement is done quickly and the interest payments are higher. 

It is also necessary to add that the longer the financing duration, the higher the interest rates. 

 

 For a funding of CHF 400’000.-

Duration 15 years 20 years 25 years
Fixed rate 2.60 % 2.80 % 3.00 %
Monthly payments CHF 2 686 .- 2 178 .- 1 897 .-
Total cost of interests CHF 83 480.- 122 720 .- 167 054 .-
Rate notices 20.02.2012 given for reference only

 

 


Advice “Mon-taux.com“:

With the fall of the EURO, you need fewer CHF to buy your property.

As a cross-border worker, take advantage of it to reduce the duration of your credit.


Personal down-payment:

Since you will be investing personal funds in this operation, your personal down-payment must represent the minimal fees connected to the project. This amount will be increased depending on the age of the borrower. 

Banks are more flexible concerning this clause with a 25 year old person. We are noticing a significant improvement of funding conditions from the moment that the personal down-payment reaches 10% of the total of the project + fees. 

The personal down-payment could come from your savings but also a donation or your contingency fund in Switzerland (second or third pillar). 

If your personal down-payment comes from your contingency fund, the capital will be taxed in France. In this case, we advice you to plan the amount of the imposition in order to avoid any surprises. 

Be careful: currently, the imposition system is not very clear. You need to be cautious against the impositions. 


Requisition form

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II – Different funding solutions

The evolution of rates and prices as well as the intense competition has led banks to develop a number of various solutions.

Rate choice depends on the context, the situation of the borrower as well as and the duration of detention of the real estate. 

Fixed rate:

Loan rate is set at the signing of the loan agreement and the interest rate does note change during the entire term of the loan. These conditions will be broken in case of advanced or updated prepayment if you renegotiate. 

A fixed rate does not necessarily mean a fixed redemption date. Indeed, some institutions offer the possibility of refunding in constant or decreasing redemption date. 

In the first case, you pay a lot of interest during the first year and a bit interest thereafter. 

In the second case, the refunding is the same each month. This option requires more funds but it is cheaper because you pay off the capital quickly. 

 

Advantages:

  • Fixed rate means absolute safety.
  • By choosing a fixed rate, you can obtain the possibility to build your budget with certainty and serenity. You free yourself of the concerns connected with crisis and financial markets. From the beginning you know the amount of your refunding and the cost of your credit. 
      

Disadvantages:

  • You cannot benefit from rate cuts. 
  • Over your credit period, you run the risk to pay more than market rates. In this case you could consider renegotiating or buying your credit back. 
  • If the repayment is advanced, fixed rates are generally subject to penalties. If these penalties cannot exceed 3% of capital outstanding, according to French law, it can often be expensive, or even dissuasive. 

 

Advice “Mon-taux.com“:

 Opt for a fixed rate for a long-term commitment and during periods of low interest rates. We also recommend the fixed rate when your budget is tight.



Variable rate:

It is a rate that changes on a periodic basis specified in the contract and according to a benchmark index. For cross-border workers within the framework of CHF currency loans, the index used is the LIBOR (London Interbank Offered Rate). This is an average interest rate estimated by leading banks which give an exchange Swiss Franc rate between banks in London Stock Exchange. 

This rate puts a surcharge on the bank margin (between 0.4% and 1%) contingent on risk and potential to your project. The deciding factors are your capital, the ratio of your monthly payment(s) of credit and your income, the seniority, the borrowing capacity. The more you reduce this margin, the better the loan rate will be. 

 

Advantages:

  • Variable rate enables to track market rates benefiting cuts.
  • This will reduce the impact of your monthly payments.
  • The beginning rate is lower than the fixed rate.
  • You can do advanced prepayments without penalties at the end of each period of updated rates.
  • The rate can change. It is sometimes included in the loan agreement or it could be the subject of negotiation with the bank.

 

 Disadvantages:

  • Variations on the increase of benchmark index can generate a significant increase in your monthly payments.
  • LIBOR is a short-term rate very volatile with large amplitude.
  • You do not get your budget in control and you completely ignore cost which your loan will represent.

 


 

  
LIBOR history:

 

LIBOR history 

 

Advice “Mon-Taux.com”:

Recording the type of spéculative funding, we recommend opting for thé LIBOR rate if tour budget can withstand large variations or also if you watt short-term operation. It is better to keep this type of rate when rates are high in speculating on a future drop. 

 


Interest rate cap:

Interest rate cap is a variable rate that can be adjusted by a cap or a floor. The limit determines the maximum rate which you can pay over the life of the mortgage. 

Interest rate cap could be introduced as an insurance that your financial conditions will never exceed the amount of the cap. Being “constructed” on the basis of variable rate, the LIBOR is the benchmark index. 

The maximum cap is determined at the beginning of the credit based on the rate of payment and WTP (starting rate = index + margin LIBOR + cost of the bank to ensure the cap). The lower the CAP, the higher the cost of insurance and the higher starting rate. You will find on the market cap of 0.50% to 3%. Note that if a ceiling is set, there is no limit to the downside. 

 

Example of interest rate cap:

 

Interest rate cap

 

Advantages:

  • You can take advantage of decreasing interest rates and also you can limit the risk on increasing. 
  • The opening rate is lower than fixed rate. 
  • Possibility of advanced repayment without penalties. 

 

Disadvantages:

  • The rate can quickly reach and keep the cap over the life of the mortgage. 

 

Advice “Mon-taux.com“:

In particular during the period of rising interest rates or high rates, it allons to speculate on a future drop in LIBOR while limiting the ris. You coule compare the interest rate cap conditions with current fixed rate to mesure the value of this solution.



The “zero rate loan” (PTZ+): Calculez votre prêt à taux zéro !

Via the PTZ +, cross-border workers can select to this type of loan when one buys a house for the first time. Interests are paid by the State but the loan is restricted to the acquisition of a new or old home only valid when you have works to do. 

The repayment duration is determined by income, ranging from 5 to 30 years, and the composition of the address for tax purposes. 

The amount of PTZ + should not exceed the total amount of other loans financing the operation. 

From 1 January 2012, the PTZ + is subject to resources conditions. In order to be eligible, cross-border workers must have low incomes. Their eligibility also depends on the number of persons per household and the location (see table below). 

 

Example: In the context of a “Zero rate loan, a marries cross-border worker with 2 children in zone A* (border zone) can request to a  PTZ+ for an amount up to € 118’560.-

  

UPPER LIMIT FOR RESOURCES

Number of person Zone A* Zone B1 Zone B2 Zone C
1 43.500 € 30.500 € 26.500 € 26.500 €
2 60.900 € 42.700 € 37.100 € 37.100 €
3 73.950 € 51.850 € 45.050 € 45.050 €
4 87.000 € 61.000 € 53.000 € 53.000 €
5 100.050 € 70.150 € 60.950 € 60.950 €
6 113.100 € 79.300 € 68.900 € 68.900 €
7 126.150 € 88.450 € 76.850 € 76.850 €
8 and more 139.200 € 97.600 € 84.800 € 84.800 €

 

 

MAXIMUM AMOUNT RETAINED FOR OPERATION

Number of person New home Old home
Zone A* Zone B1 Zone B2 Zone C Zone A* Zone B1 Zone B2 Zone C
1 156.000 € 117.000 € 86.000 € 79.000 € 124.000 € 93.000 € 86.000 € 79.000 €
2 218.000 € 164.000 € 120.000 € 111.000 € 174.000 € 130.000 € 120.000 € 111.000 €
3 265.000 € 199.000 € 146.000 € 134.000 € 211.000 € 158.000 € 146.000 € 134.000 €
4 312.000 € 234.000 € 172.000 € 158.000 € 248.000 € 186.000 € 172.000 € 158.000 €
5 and more 359.000 € 269.000 € 198.000 € 182.000 € 285.000 € 214.000 € 198.000 € 182.000 €

 

AMOUNT OF PTZ + (% OF OPERATION AMOUNT)

Geographic zone New home Old home
 

BBC

(low energy buildings)

Non BBC

Beyond energy rating

Zone A *
38 % 26 % 10 %
Zone B1
33 % 21 %
Zone B2
29 % 16 %
Zone C
24 % 14 %

 * ZONE A :  zone fortement tendue (disposant d’une demande bien trop importante par rapport à l’offre immobilière) – Genevois français (voir la carte)

 

 

 


Mix different types of interest rates:

Banks now offer many financing solutions for currency loans, but you can also “build” your own credit by mixing different types of rates. If you decided to choose this type of rate you have to pay different interest rates during specific time frames. 

 

 

 

Example: Paul Smith needs to take out a loan of CHF 500,000. – in order to purchase an apartment. He wants a fixed rate financing which will bring him stability and security in his budget (2.75% for 25 years). At the same time, he regrets that he will not benefit from a funding low rate LIBOR (0.65%). With his advisor “My-taux.com”, Paul Smith built a customized funding by borrowing CHF 400’000. – fixed rate and CHF 100,000. – in Libor. He knows that his budget is stable at 80% and only 20% is subject to fluctuations. But above all, he managed to bring the average rate of his credit 2.33%.  


Requisition form 

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III – Guarantees

The implementation of a mortgage also requires guarantees to the bank to repay a loan.

We are going to see various guarantees required for a currency loan

 

The “privilège de prêteur de deniers” (PPD):

This “money lender’s precedence” or “lender’s lien” must be subject to notarial deed and it must be mortgage at the center of land registry within two months after the sale. The precedence will have the priority of all the guarantees that will be taken on the property, that is why it uses “precedence” term. 

Moreover, the registration of the PPD is only possible on purchase of an existing property: either an existing house or an apartment or a land. However, it is not available to finance the construction of the house, construction work or remortgages. 

The cost of registration of the PPD is meeting by the borrower, but this guarantee is cheaper at the beginning. Exempt from the land registration tax, cost is currently lower than a « hypothèque ». In practice, this guarantee will be asked by your bank to each case where it is possible, rather than a « hypothèque conventionnelle ». 

If you decided to advanced repayment, it will generate withdrawals. Indeed, when you sell the property two years before the end of your mortgage or debt consolidation loan, you must make an advanced withdrawal of the precedence. 


Mortgage :

If you buy a property using a bank loan, operation always is added to guarantees: « hypothèque conventionnelle » or PPD. 

The « hypothèque conventionnelle » agreement will require a specific French notarial deed. The notary has to prepare requirements for publication of mortgage office. 

If borrower does not pay, the mortgage will allow to your creditor to grab property, and also they will get the sale of the building. The bank that loaned funds will able to be paid on the sale price. 

The mortgage effect disappears along with the debt, but the registration only occurs one year after due date. Indeed, the law retains the mortgage during this period to allow creditors to play its potential use for missing payments. 

Thus, any resale of property during one year of due date requires a mutual agreement to release the creditor. 

 

The costs of the mortgage agreement including taxes, fees and notaire’s fee, is roughly 2% of the amount secured (amount borrowed + accessories). The land registration tax is approximately 0.60% to 3.60% depending on the property is new or old (art 844 General Code of Tax). The notary’s fee is fixed by a decree of March 1978 (rate of Notaries). Withdrawal involves costs and payment of duties and taxes the Conservation of Mortgages. 


Security organism:

 In order to reduce costs for borrowers, banks have created surety companies that will guarantee their commitments. Then, the organization of deposit is used to replace the mortgage or PPD. In case of payment default by the borrower, the bank will return directly to the deposit to cover his debt. Then, the surety company will use actions against the defaulting debtor and all of its assets. 

The initial contribution amount is between 1.8% and 1% of the amount of loan. It is composed of the costs (of around € 300. -) and a guaranteed fund refundable up to 75% in loan repayment. 

This solution, increasingly used by banks, is common practice for CHF Currency Loans

Its advantages can be summarized in 3 points 

  • Initial cost less than or equal to a mortgage. 
  • Repayment of part of the guarantee fund to repay the credit. 
  • Economy of discharge of mortgage if the property is sold. 

The bank will make the arrangements in order to allow you to benefit from these guarantees. 

Please note that if Credit Housing is the largest, most banks have created their own surety, whose prices are very close. There is just one element on which we can notice a variation on it, it is the rebate amount at the end. 

Finally, to protect themselves from currency fluctuations, banks often take margins (nearly 5%) on the amount of security. 

 

 


Joint liability security:

In some cases, the bank may take a joint liability security from an individual to secure its credit. It may be a single guarantee or a complement to standard guarantees previously studied. Through its commitment to joint liability security, the latter undertakes its incomes and assets to secure funding. If the borrower defaults, the bank will turn against both the borrower and the guarantor. It is important to be careful when making such appointments. The great advantage of this type of guarantee is its price, because it does not generate specific costs. 


Currency hedding:

This is a binding contract between the bank and the customer used to block and secure, from the day of signing the contract, the exchange rate for a period and a specified amount.

In a case of a mortgage in Swiss francs, this solution ensures the customer that he will have necessary funds for the day of signing at the notary’s office his home in France.

This is a guarantee exchange, which is particularly recommended for new construction where the release of funds occurs over a period of up to 24 months. 

A lot of banks offer this type of solution with coverage periods ranging from 12 to 36 months.

Coverage over three years will obviously be more expensive than coverage for a year but covers a greater risk. 

  

Requisition form

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IV – Credit life insurance cross-border borrowers

 

When you decided to get a credit, you have the option to purchase credit life insurance. It is not a legal obligation but French banks ask this type of insurance to minimize the risk of non-payment. Credit insurance pays off your loan should you die, lose total or suffer irreversible autonomy or become permanently disabled. 

Its aim is to protect the bank which is the beneficiary of the contract but it is also an essential guarantee for the borrower and his family

Two solutions are presented: the group contract offered by banks and the individual contract offered by insurance companies. 

The group contract is often more expensive but generally more comprehensive about guarantees. It is also less restrictive if there is a modification in the situation and thus an evolution of “cover risk” while the duration of funding. It facilitates making the decision for the bank, and it allows a better negotiation on rates and other costs. 

The individual contract is a tailored-made insurance with more competitive prices than group insurance to the extent that the price will be directly related to the hedged risk and the guarantees offered. You should know that if you change your situation (personal, professional …) you have to notify the insurer of your situation within 30 days after the change, by sending a registered letter joined to an acknowledgment receipt in order to maintain guarantees. 

Banks are free to accept or decline insurances submitted by their customers if the guarantees proposed are not at least equal to their group contract.  

   

Advice “Mon-taux.com”:

Under 35 years of age, a healthy and non-smoking individual contract will permit to save up. 

Over 35 years of age, with a good negotiation the group contract will offer the best quality / price ratio. 

 

What are the precautions to take? 

  • To compare: to ask systematically general conditions of the proposed contract. 
  • To check: the definition of disability which may differ from one insurer to another and if the management at the onset of a claim is for damages (supported only if loss of income) or fixed (amount and duration defined in advance) 
  • To be watchful: to draw Exclusions paragraph to your attention for death and especially in case of disability or incapacity. 

For a delegation of insurance, allow yourself some time to search, compare and negotiate the contract as well as time for the acceptance by the bank. 

However, you need to pay attention to cheaper contracts which are often poor in terms of coverage, so on the quality of patient charges. 

The best contract will be the one that offers to borrowers the peace of mind during the loan because it will permit to preserve the well-funded disaster. 

 

Requisition form 

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V – Legal obligations


Scrivener law

 

The scrivener law is used for improving the information of the borrower to protect himself against mortgages becoming more and more complex. The law must allow the consumer to become aware of the scope of his commitments, and even, to enable, if necessary, a possibility to go back if the offer does not suit him. 

Promulgated in January 1978, it has been supplemented by the Scrivener 2 law in July 1979. 

Individual people subscribing to a mortgage with an amount exceeding € 21,500 to finance the acquisition of an accommodation are under the protection of the law. 

The scrivener Law is organized into three parts: 

  • The content of advertising for a real estate loan should identify specific information such as the identity of the lender, the type of lending and funding purpose, the total cost of credit and the APR (Annual Percentage Rate), the reflection period of 10 days available for the borrower… 
  • The content of the loan offer, with statements designed to inform consumers. He gets a delay before accepting a funding offer (10 days to consider the offer, it must be valid for 30 days). 
  • The loan agreement as an ancillary to a sale. In case of cancellation of the sale, the loan becomes null. 

Of course, the currency mortgages are including into this category. 

 


Neiertz law

 

The Neiertz law is indented to protect individual people against over indebtedness. Establishment in 1990, it was updated in 1995. In particular, it includes: 

 

  • To empower banks by requiring them to check the creditworthiness of their clients before establish a credit. 
  • In this context, The FICP (Household Credit Repayment Incidents) was created. 
  • The creation of the Committee of over-indebtedness, which is intended to find an agreement between creditor and debtor in case of payment difficulties of the latter. 

 

After reviewing the record, the commission sets up a reorganization plan with creditors with the conditions of reduced rates so that it can meet its expenses. 



Advanced Prepayment

In case of a sale of the property, a credit recovery or a gain of money, the borrower has the possibility to prepay the creditor in a partial or total way. The bank cannot oppose but can be eligible for compensation supposed to compensate the shortfall on interest. Calculating the amount of prepayment options is set by the Consumer Code (L312-21 and R312-2 articles). The penalty could not exceed 6 months of interest of capital paid or 3% of capital outstanding. 

In general, floating-rate loans and LIBOR and LIBOR capped in particular, are not subject to penalty if the repayment occurs after the period of rate revision. 

Banks cannot charge early repayment charges for personal loans. 

Note: My-taux.com lists the rates for reference only gradually as they are known. These methods are capable of development and could not engage our responsibility. Keep going on “Mon-taux.com to keep informed about rate changes and actuality of the credit.