May 2015 – French Mortgage Transaction of the Month

Even with fixed rates so low, not all buyers are opting for a traditional long term fixed rate mortgage. An interest-only/fixed-rate split still suits some buyers.

For many, a 20-year fix at around 2.55% is a no-brainer, yet May’s transaction of the month demonstrates how buyers are using different methods to make the most low French mortgage rates. Savvy buyers are structuring their purchase for the own specific long term plans.

This is just the case with a buyer in Paris who is purchasing a very located apartment in the 5th Arrondissement. They have opted for a 60/40 split, with the larger portion a 15-year interest-only mortgage and the smaller on a 20-year repayment structure.

The 60% interest-only loan means their repayments are lower as they do not want to be exposed to heavy monthly amounts and the 40% repayment portion provides a level of security.

With the central Paris property market showing good signs of growth, especially in sought after locations like this, their plan is to look at selling after 15 years, after which a conservative level of appreciation should provide a good return. Capital Gains Tax of 19% would still apply here of course as the ownership term has not passed the 22 year period, but with the taper relief system in place, 15 years of ownership would reduce the CGT payable by more than 50%.