Whether for a primary, secondary or rental investment, when you have the choice between paying for real estate or borrowing, the answer is not so easy to provide.
We help you to see more clearly to buy in cash or on credit, or to make a mix of the two solutions, according to each situation.
Pay cash for your property
By saving over the years, or through a donation or an inheritance, some potential borrowers find themselves at the head of a substantial heritage. The latter allows you to buy an apartment or a house “cash”, that is to say without having recourse to any loan to finance the property. The question then arises: should we pay cash or have recourse to the bank loan?
The answer is variable and depends on the profile of the buyer. If for some, the use of a mortgage is distressing because it is akin to a debt, for others it is synonymous with freedom since savings remain available and allow them to devote themselves to other projects, such as leisure, travel, purchase of movable property, etc.
Looking at it more closely, the most relevant calculation would be the following, assuming that you buy a house at 200,000 euros over 20 years: how much does my mortgage cost me over 20 years and how much? yields an investment for the same duration?
At present, with relatively low interest rates for real estate loans, but also for insurance or the PER Retirement Savings Plan, we can estimate the following costs and revenues:
- A loan of 200,000 euros can be financed at a rate of 1% insurance included, or approximately 980 euros in monthly installments, insurance included, for an overall cost of 36,000 euros on average
- Savings of 200,000 euros placed in life insurance or a PER for 20 years, with a prudent investor profile, at 2% per year on average, saves 80,000 euros
Therefore, we understand that the question arises above all depending on the feelings of borrowers, but when rates are low, resorting to mortgage is the best option, from a purely financial point of view.
Borrow to finance your real estate purchase
Inevitably, the quick calculation made above shows that from a balanced wealth perspective, the use of a mortgage is more advantageous. It is certain, but to benefit from the best borrowing conditions, and in particular the best bank interest rates, it is necessary to have an irreproachable file.
Indeed, the noose is tightening in an uncertain economic context and to access the best offers, it is better to fulfill certain pre-requisites. Among these, here are the most important to respect:
- A minimum 10% contribution on the total cost of the acquisition: in order to cover all the ancillary costs to the property itself (bank file costs, notary fees, guarantee costs and possible brokerage fees)
- A debt ratio of 33% maximum: in France, this is the rate used by banks to grant or refuse a mortgage, but it is not sufficient and the rest to be lived will be closely studied
- Sufficient remainder to live: this is your disposable income, once the loan deadline has been paid, it must cover the needs of the household (single or in a couple, with or without children, etc.) depending on the place of residence ( the cost of living is higher in the Paris region than in the Ardèche)
- Income stability: a permanent contract in a promising sector, not subject to administrative closures or partial activity, is welcome, ditto for the self-employed with balance sheets over the last three years
If you meet the criteria set out and your file does not represent a specific difficulty, financing your property with 10% contribution and a mortgage at low rates is undeniably a relevant choice. However, you should pay attention to the borrower insurance rate, which may differ depending on your age and your state of health in particular.
Take out a mortgage and pay part of the accommodation in cash
A mix of the two solutions is also possible. Thus, part of your savings can be invested in a profitable investment, more or less risky according to your risk appetite, and the other can be invested in the acquisition of real estate.
By opting for this solution, the advantage in terms of the mortgage is notable. Indeed, the shorter the duration of the credit, the lower the borrowing rate, and the less expensive the borrower insurance.
Thus, by taking the hypothesis of real estate at a price of 200,000 euros, a mortgage of 100,000 euros over 10 years would allow you to obtain monthly loan maturities of only 900 euros, insurance included. The total cost of the loan would be less than 7,000 euros.
At the same time, investing 100,000 euros in PER or life insurance would bring you, in 10 years, nearly 40,000 euros. In an uncertain context, this solution appears to us to be the best investment choice.
Make a simulation to choose well
Whether you want to finance your purchase in whole or in part through a mortgage, online simulators will be of great help to you. In a few clicks and without obligation, you will be able to access the best credit offers, and determine whether you are paying cash or financing your property acquisition on credit.