Everyone looks for the most attractive mortgage loan solution.
And many are the credit institutions that claim to offer such a solution.
It does help to know what we mean by “most attractive”! What is more important ? Paying as little as possible every month or making sure that the total cost of the loan stays as low as possible over its life ? There are 2 different “schools of thought”, each with their own advantages.
- Loan with equal monthly repayments
- Loan with repayments in equal tranches of capital
- Fixed-term loan
- Reductions ?
- What to choose ?
- Investment mortgage (Branch 23)
With the equal monthly repayment loan, the same amount is repaid during the entire life of the loan (naturally on condition that there is a fixed rate contract). The monthly repayment consists of an interest portion and a capital repayment portion. If the total monthly repayment is fixed, the portion of each component varies: at the beginning, the interest amount is high and the capital portion is minimal. However, little by little, the trend reverses: the capital repayment will take up a major portion of the monthly repayment.
Another plan is that of repayments in equal capital tranches. Here, the portion allocated to the repayment of the borrowed capital is constant throughout the duration of the contract. On the other hand, the interest portion varies: this is high in the beginning but will decrease over time, meaning that the total monthly repayment will gradually decrease.
With fixed-term credit, the total capital borrowed is repaid in one go, at the end of the loan period. Monthly repayments therefore only comprise interest and no capital repayments.
With some organizations, you can obtain conditional reductions depending on whether you are a full or partial client of the bank, have savings or have taken out insurances. The danger attached to these systems is that basic rates are generally always higher than in the no-obligation plans, and one could lose a portion or all of the reductions if one no longer meets all of the loyalty terms and conditions. Who can ensure an ideal banking service, the best investment terms as well as the most attractive insurance cover and claims service for 15 or 20 years ?
Freedom – Freedom ? Everyone is free to choose.
The best loan does not exist — what is best for one person will not suit someone else. However, we can say that the shortest loans as well as those where more capital is repaid at the start will be a lot less costly. Furthermore, the borrower will see their monthly repayments decreasing over time and will be able to face new expenses: children’s education, renovations or refurbishment of their property etc. However, it is also true that the monthly repayments will place more of a burden in the beginning, i.e. at a time when the borrower thinks that the money is most needed.
For this reason many borrowers opt for the equal monthly repayment plan which is easier to bear at the beginning of the contract. Besides, they believe that their income will tend to increase and as a result, repayments will be less and less of a burden on the household budget. They must however take into account another drawback of the equal monthly repayment plan: the balance to be repaid will be higher in the event of an early settlement, since the capital portion is very low in the first few years. The example below illustrates this perfectly. It is up to you to decide what is more important. It is not an easy choice, but do not hesitate to contact us for a complete assessment and to look for a solution that best meets your needs and situation.
Example: 20-year period – Borrowed capital: €10,000 – Fixed rate of 2% (Careful interest rate of 2 % seen the current economic situation)
|Equal capital tranches, decreasing monthly repayments||Equal constant monthly repayments|
|1st monthly repayment||€ 58.19||€ 50.51|
|60th monthly repayment||€ 54.13||€ 50.51|
|120th monthly repayment||€ 50.00||€ 50.51|
|180th monthly repayment||€ 45.87||€ 50.51|
|240th monthly repayment||€ 41.74||€ 50.51|
|Average monthly repayment||€ 49.96||€ 50.51|
|Outstanding balance owing after 10 years||€ 5,000 –||€ 5,534.29 –|
Equal capital tranches
Equal monthly repayments
Borrow while investing in the Stock Market!
A mixed mortgage loan that is repaid through a standard repayment plan (equal monthly repayments) for the tax-deductible portion and the difference, by way of the capital built up through a Branch 23 investment product.
The entire capital can also be built up again through the investment savings. Why an investment mortgage ?
Why an investment mortgage ?
Considering the low interest rates we have experienced these past few years, it may be worth speculating on an average stock market return that is higher than mortgage-lending rates over the long-term. To this end, Branch 23 investment funds can currently be used as a plan for building up capital, thereby enabling the mortgage loan to be repaid.
Investment mortgage features
The investment credit part consists of a fixed-term loan repayable in one go at maturity; during the entire loan period, the client only pays the interest portion.To this end, the client has a choice between variable or fixed interest-rate plans.
Who is the investment mortgage aimed a t?
The investment mortgage is aimed at a target group of borrowers who are familiar with stock-market investments and who are aware of the possibilities offered by shares over the long-term. Their aim, other that of fixed-term capital repayment, is creating a capital gain and hence additional capital.
|Employed borrowers and purchase of a first home.|
|Net monthly income||
|Net monthly income||
|Purchase price||€ 225,000.00|
|Borrowed amount||€ 187,500.00|
|Cadastral income of building||€ 2,500.00|
|Initial loan period||20 years|
|Type of rate||Fixed|
|“Standard” loan repayable
in equal monthly instalments
|Monthly repayments||€ 327.65|
|Total period (240 months)||€ 78,636.32|
Loan with repayment of capital at or before maturity
|Monthly interest||€ 202.58|
|Total interest (240 months)||€ 48,618.36|
|Branch 23 savings required to rebuild the capital|
|Monthly investment in an investment fund to rebuild the capital by or before maturity|
|by saving:||€ 416.09 per month|
|The savings will entirely repay the borrowed capital; the time taken for rebuilding
will depend on the fund result
|Totals||Equal monthly repayments
+ fixed term
+ Branch 23 savings
|Borrowed capital||€ 187,500.00|
|Total monthly repayments||€ 946.31|
|Total period (240 months)||€ 227,114.40|
Given that life insurances linked to investment funds do not benefit from the tax relief related to capital repayment (since there is none), we advise you to only make use of this type of credit when there are no more repayment plans available that have tax benefits.
The portion rebuilt in a Branch 23 guarantees neither return nor value at maturity. Depending on stock-market trends this may be lower, equal to or greater than the capital to be built up again. The borrower who takes out this type of loan is therefore aware of the inherent risks attached to stock-market investments!
If the average return of the Branch 23 share fund(s) is lower than the mortgage loan rate, the capital will not be completely rebuilt. In this case, the borrower must either supplement with their own funds or request an extension of the initial credit period.
PS: Savings are distributed in an investment fund with several compartments
|By saving € 416.08 every month in a Branch 23 capitalisation fund, the capital of € 122,625 would be repaid (Careful interest rate of reconstruction of 2 % seen the current economic situation)|
|after 20 years at an average capitalisation rate of 2,00%||€ 122,625.00|
|after 18 years and 5 months at an average capitalisation rate of 3,00% the capital would be||€ 136,331.81|
|after 17 years and 2 months at an average capitalisation rate of 4,00% the capital would be||€ 151,881.54||after 16 years and 1 month at an average capitalisation rate of 5,00% the capital would be||€ 169,533.55|
|If on the other hand, the fund result is only for instance, 1.50% after 20 years the capital would only be||€ 116,390.47|
|You would therefore have to make up the difference using your personal savings or request an extension of the loan|
For simplicity, the example above is based on a fixed rate but any variable plan is permitted.
What are the advantages of the investment mortgage ?
The investment mortgage enables the client to save regularly over the medium- or long-term in investment funds with a high return potential, and to build themselves additional capital which they will be able to use as they wish when the mortgage matures. In fact, if the return is greater than the rate of return estimated at the start, the client will benefit from an extra sum at maturity.
The client can also opt for an early settlement of their mortgage loan. With regards to building up capital, investment opportunities are guaranteed of an excellent return.
Furthermore, the client also has the option to change from one fund to another at any time.
Should one be scared of a fall in the Stock Market ?
With savings being constant, a fall in the Stock Market will enable the client to buy more shares. In the long-term, the Stock Market has always been the best investment!
The investment mortgage constitutes an opportunity and a risk.