Wear rate. It’s an expression that has been on everyone’s lips – at least on candidates for the purchase of real estate – since this summer. Because if its primary goal is to protect borrowers against the practices of credit institutions with abusive interest rates, the usurious rate today blocks access to financing for some of them.
The interest rate actually refers to the maximum annual percentage rate (APR) at which banks are allowed to lend money. The unwanted effect that it has produced recently is due to its calculation method that has been hammering mortgage brokers for months. To calculate and update it on a quarterly basis, the Banque de France follows a method defined by law on the basis of the rates applied by banking institutions in the previous three months.
The problem is that in a period of galloping inflation like the one we are experiencing, the banks quickly increase their interest rate plans to tune their violins to the European Central Bank. Which, to counteract rising inflation, is gradually raising its three key interest rates. (More details in our dedicated article.) Consequence? Borrowers are caught between, on the one hand, the maximum interest rates at which they are entitled to borrow, and on the other hand, increasingly higher interest rates charged by banks, which are also forced to pay more and more for refinancing.
The number of granted bank loans in 3e quarter 2022 is a decrease of 28% compared to the same quarter the previous year
As a result, the number of bank loans granted is 3e quarter of 2022 has decreased by 28% compared to the same quarter of the previous year, according to the latest Crédit Logement / CSA Observatory. The error with the rate of wear, but not only, Crédit Logement nuances: “Limitations to adjust their rate (parameter of the rate of wear) and by respecting the recommendations of the HCSF on the duration and the personal contribution, the banks have limited their offers to categories of customers who make them able to ensure their profitability”. (Click here for more information on the latest Housing Credit Observatory / CSA).
If it is not possible to borrow at a rate higher than the attrition rate calculated by the Banque de France, it is however possible to lower its APR so that it enters the seams. Here are our tips.
Bet on loan insurance
Your borrower’s insurance forms a significant part of the total expenses for your mortgage loan. Take the example of a loan of 250,000 euros entered into over a period of 20 years. With an insurance rate of 0.34%, which is the rate shown by default in the broker Meilleurtaux’s monthly payment estimation tool, the borrower insurance represents 17,000 euros. Or 22% of the total cost of the loan, which reaches 79,128 euros (calculation made on the basis of the average interest rate for “good” files on October 17, 2022). (Click here to earn the salary for borrowing 250,000 euros.)
So don’t hesitate to compete when your bank offers you the home insurance policy to reduce the cost of mortgage insurance and ultimately your APR. To find the most interesting offer for you, you can contact banking institutions or insurance networks directly or go through a broker. Many of them offer online comparators to get you to use their services.
Another trick if you borrow two: Bet on the insurance quota. By default you will be offered a quota of 100% each, but you can also choose a quota of 50%. If we take our example of a home loan of 250,000 euros, if taken out as a couple, each will be covered up to 125,000 euros. In the event that one of the two contracting parties dies, the survivor will only have his own share of the credit for settlement.
Negotiate your application fees
Remember to negotiate the application fee. The latter are included in the calculation of the APR, and obtaining a discount on their amount may allow you to claim a loan interest rate that is lower than wear and tear.
Loan at the right time
In your loan application folder, you must especially state your last 3 payslips if you are employed (or your last 3 balance sheets if you are a merchant, craftsman, self-employed, etc.) and your account statements for the last 3 months. If you make sure to apply for a loan after paying a bonus and/or obtaining an annual increase, you increase your chances of moving into the higher interest net. Enough to go from “good” to “very good” file, for example. By doing so, you will be eligible for lower interest rates than you would have been eligible for a few weeks earlier.
Increase your personal contribution
The bank will generally ask you for a personal contribution of 10% to provide you with financing. To take the example of our loan of 250,000 euros, this means that you have to present a personal contribution of 25,000 euros. If it’s up to you, increasing the proportion of your personal contribution and increasing it to 20 or even 30% of the loan amount can drastically lower the interest rate that the bank will be willing to give you, as you reduce the amount to be borrowed. Although this is the most obvious solution, it is also the most difficult to implement.
Loan for a shorter period
Again, you must have the funds to use this trick. But loans over a shorter period automatically lead to a decrease in the interest rate. The counterpart is that the monthly payments to be repaid will be higher. Your level of resources must therefore be sufficient for you to stay below the 35% debt limit, including borrower’s insurance.