Borrowing capacity, income and budget
What term should you choose for your mortgage: fifteen years, twenty years, or longer?
Paying the least interest without strangling your budget: what each term changes, how far the lender can extend it, and the method for choosing.
The right term is the shortest one that your budget can support without reaching the ceiling, within a loan offer that allows you to accelerate later. Extending the term lowers the monthly instalment, with diminishing returns as the term lengthens, but increases the cost of the credit: generally a higher interest rate, and interest and insurance paid for longer. A maximum term, set by the Haut Conseil de stabilité financière, applies to all lenders.
By Sandy MASCART, mandataire d'intermédiaire en opérations de banque et en services de paiement ORIAS 26000541 sous le mandat de CDV PATRIMOINE & ASSURANCE (ORIAS 14005573)
Key points
- The term acts on three levers simultaneously: the monthly instalment falls, the interest rate generally rises, and the total cost increases with it.
- The gain in monthly instalment obtained by extending the term diminishes as the term lengthens, while the total cost continues to rise.
- A long-term mortgage repays the principal more slowly at the beginning: selling early leaves less principal repaid than with a short-term mortgage.
- A maximum term, set by the Haut Conseil de stabilité financière, applies to all lenders: extending the term implies a delayed entry into the property.
- Changing the term after signing requires a modulation clause, an early repayment, or an amendment: no route is an automatic right.
The appropriate term is the shortest that your budget can support without being at the limit, within a loan offer that allows for acceleration later. It costs the least and leaves a margin. Reference: the borrowing capacity.
Which term to choose: what it changes
Extending the term lowers the instalment, but generally increases the rate and the total cost. The term is a trade-off, not an adjustment.
| If you extend the term | What happens |
|---|---|
| The instalment | It decreases, less and less as the term is extended |
| The proposed rate | It increases, generally: each term bracket has its line in the grid |
| The cost of interest | It increases significantly: higher rate, over a longer period |
| The cost of insurance | It increases: it is due for as long as the loan runs |
| The capital repaid in the first years | It decreases: the beginning of the loan pays mostly interest |
| The amount borrowable at equal instalment | It increases: this is the reason for extending |
Extending an already long term provides little relief. The grids: reading a bank schedule.
Planned resale soon? The short loan leaves more capital
The beginning of a long loan pays mostly interest. Ask yourself how long you will keep this property.
The maximum term
The High Council of Financial Stability sets a maximum term for all banks, with a limited extension for new builds or major works.
Elle se compte différé compris : c'est la somme de la période de différé et de la période de remboursement, pas le remboursement seul.
- En vigueur depuis le
- Source
- Décision D-HCSF-2021-7, art. 1er — Légifrance
Il vise les achats dans le neuf et les opérations avec travaux importants, où l'on commence à emprunter avant d'habiter. Ce n'est pas une durée de confort que l'on peut demander sur un achat ordinaire.
- En vigueur depuis le
- Source
- Décision D-HCSF-2021-7, art. 1er — Légifrance
At the maximum, only the down payment, the price or your expenses can still vary.
Ce plafond et celui de la durée jouent ensemble : un dossier qui n'entre dans le premier qu'à la durée maximale n'a plus aucune marge si un élément bouge pendant l'instruction.
- En vigueur depuis le
- Source
- Décision D-HCSF-2021-7, art. 1er — Légifrance
Short term: the lowest cost
For a budget that absorbs it without strain: resale, settlement before retirement, comfortable income. A short-term loan that you cannot sustain costs more than a long-term loan that you can sustain.
Long term: breathing room, with an exit route
For a low monthly instalment today (early career, another credit that is ending) or a rental property. Request before the loan offer:
- a modulation of instalments;
- partial early repayments without deterrent fees;
- insurance on the outstanding capital.
See modulating your instalments and the early repayment compensation.
Four questions to decide
- How long will you keep the property?
- What monthly instalment can you sustain in a bad month?
- What age will you be at the final instalment? Insurance and retired income count.
- Another project within ten years? A short-term loan closes the door.
Request the same proposal on two or three terms, and compare it to your resale horizon.
Changing the term after signing
Only by the planned modulation, a partial early repayment or a renegotiation. None is automatic.
It is easier to shorten than to extend: start with a sustainable term.
I am a mortgage intermediary working under mandate (fees). Prepare your documents and have two terms compared by telephone.
Create your file: several terms, set side by side.
Sources
Read next
- How much can I borrow? Mortgage capacity in Lyon
- Debt-to-income ratio: the HCSF rule, its derogation margin and how the bank applies it Calculate your debt-to-income ratio as an analyst would: retained charges, residual income, HCSF derogation, and the levers to get back under the cap.
- Calculating the monthly repayment on a mortgage: the formula in six steps, and its blind spots Calculate the monthly repayment on your mortgage in six steps, then see what the formula omits: insurance, guarantee, fees, APR and usury.
- Adjusting, deferring or suspending instalments: getting through a difficult period without changing your loan Adjusting, deferring or suspending instalments: what each clause really costs, the condition raised against you, and the written confirmation to get.
- Repaying your mortgage early: paying the compensation fairly Repaying early is a right. The compensation is due only if the contract provides it, capped at the lower of two calculations. The exempt cases.
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