Mortgage basics · Guide
Loan smoothing: multiple loans, one instalment, the cost and what to demand
One instalment for multiple loans: how the lender smooths the schedule, the cost, the effect on your zero-interest loan and the six questions to ask.
Smoothing constructs the repayment schedule of the main loan so that the sum of the instalments for all loans in a transaction remains constant. It is not free: the main loan amortises more slowly at the beginning, which extends its term and increases the total cost of the credit. It is requested at the assessment stage, before the loan offer: demand the schedule with and without smoothing, the total cost in both cases, and an amortisation table for each loan.
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
- Smoothing constructs the repayment schedule of the main loan so that the sum of the instalments for all loans remains constant from start to finish.
- Smoothing is not free: the main loan amortises more slowly at the beginning of the period, which extends its term and its total cost.
- On a smoothed schedule, the lender retains only one monthly charge for the debt-to-income ratio, instead of choosing between the average charge and the high charge.
- Shortening a supplementary loan or increasing the equity can reduce the comparison base and therefore cap the amount of the zero-interest loan.
- A main loan at a fixed rate and a loan with stepped rates do not follow the same rule for compensation in the event of early repayment.
The main loan, the PTZ, and the employer loan: added together, they create a burden in steps. Smoothing levels them out into a constant monthly instalment, at the cost of a more expensive loan and sometimes a reduced PTZ. This is one of the fundamentals of mortgage credit.
What is mortgage loan smoothing?
A calculation: the repayment schedule of the main loan is constructed so that the sum of all your loans remains constant. It amortises little as long as the other loans weigh heavily, and more when they end.
- Not a renegotiation: it is decided before the issuance of the loan offer.
- Not modulation: it is fixed from the outset.
- Not a stepped-rate loan: each contract retains its rate. The difference matters on the day you sell.
Where do the steps in the monthly instalment come from?
From a loan that starts or ends on a different date than the others:
- the PTZ deferral, never very short;
- short supplementary loans (employer, housing savings, works);
- works released in several stages: the works financed by the loan.
Sa durée réelle dépend de la tranche de revenus. Le jour où le différé s'achève, une charge nouvelle apparaît, et elle n'était pas là la veille.
- En vigueur depuis le
- Source
- Article L. 31-10-11 du code de la construction et de l’habitation — Légifrance
| Period | What happens | Effect on the burden |
|---|---|---|
| Start of the loan | Main loan + short supplementary loan, PTZ in deferral | High burden |
| End of the supplementary loan | One line disappears | Sudden drop |
| End of the PTZ deferral | One line appears | Sudden rise |
| End of the PTZ | The line disappears | New drop |
How the lender constructs a constant instalment
It sets the total instalment that your application can support, deducts the other loans period by period, and the remainder becomes the instalment for the main loan.
| Unsmoothed plan | Smoothed plan | |
|---|---|---|
| Total instalment | Variable, four regimes | Constant, or almost |
| Instalment for the main loan | Constant | Divided into phases |
| Term of the main loan | The one requested | Often extended |
| Interest on the main loan | Lower | Higher |
| Readability for the household | Low | High |
What smoothing actually costs
Additional interest: the main loan repays less capital at the beginning. The extra cost is visible in the total cost and the annual percentage rate of charge, not in the instalment.
Request two plans, smoothed and unsmoothed, and compare the term of the main loan, the total cost and the annual percentage rate of charge: read the APRC.
Does smoothing change the debt-to-income ratio used by the lender?
It changes the burden taken into account. Smoothed: a single figure. Unsmoothed: the lender takes the average or the highest burden, depending on its policy.
Critère d'octroi imposé aux établissements de crédit par le Haut Conseil de stabilité financière.
- En vigueur depuis le
- Source
- Décision D-HCSF-2021-7, art. 1er — Légifrance
This threshold is added to the criteria of each lender: the HCSF threshold. A deferral consumes admissible term: the PTZ, the down payment and the debt-to-income ratio.
Smoothing can reduce your PTZ
The PTZ is capped relative to the other loans in the transaction, those that reach a minimum term.
Comparaison large : un prêt dont la durée atteint exactement ce seuil compte. Un prêt plus court, une avance de trésorerie ou un crédit à la consommation n'y participent pas.
- En vigueur depuis le
- Source
- Article L. 31-10-8 du code de la construction et de l’habitation — Légifrance
Le code de la construction et de l'habitation rattache la dérogation à la quotité, par une comparaison d'égalité stricte, jamais au numéro de la tranche.
- En vigueur depuis le
- Source
- Article L. 31-10-8 du code de la construction et de l’habitation — Légifrance
- En vigueur depuis le
- Source
- Article L. 31-10-8 du code de la construction et de l’habitation — Service-Public.fr
- En vigueur depuis le
- Source
- Article L. 31-10-8 du code de la construction et de l’habitation — Légifrance
- Shortening the complementary loan may exclude it from the calculation and lower the PTZ.
- Increasing your contribution may produce the same effect.
- Everything is calculated as a single block: see the PTZ in Zone A.
Reselling a tiered structure: the exit trap
If the main loan has different interest rates depending on the periods, the early repayment penalty may be increased. A smoothed structure at a single rate is not subject to this. Check the interest rate line by period: early repayment, reading your loan offer.
What cannot be smoothed
- Borrower insurance, if it covers the outstanding capital: compare two insurance policies.
- A variable rate: smoothing relies on the initial rate.
- Council tax, service charges, capital calls.
Is smoothing requested, or is it mandatory?
It is requested: no text mandates or prohibits it. During the study, request the schedule with and without smoothing, and the total cost in both cases.
Six questions before signing a smoothed schedule
- How many phases, and what are the switch dates?
- What is the duration of the main loan, with and without smoothing?
- What is the total cost in both cases?
- Which loans are included in the PTZ cap?
- What charge was used for the debt-to-income ratio?
- Does the main loan have a single rate?
Request an amortisation table for each loan and the total charge year by year. A right to a home savings loan is smoothed like the others: the PEL and the CEL.
Several loans to assemble? Create your file or have your smoothed schedule analysed by telephone.
Sources
Read next
- Mortgage in Lyon: frequently asked questions
- Does the PTZ count towards your debt-to-income ratio? Can it be used as a down payment? Yes, the PTZ counts in your debt-to-income ratio from the end of the deferral; no, it does not replace a down payment. What the lender calculates.
- 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.
- PEL and CEL: Does the loan entitlement still hold any value today? Your loan entitlement’s rate was fixed the day the plan opened. Where to read it, what to compare it with, and the decision rule in three questions.
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