With the rate going down to 1% soon, this investment becomes more than ever precautionary savings. Because it is more profitable to increase the monthly payments of his mortgage rather than depositing his savings capacity on a passbook A. In particular for the owners who bought a few years ago, when the rates were high. Demonstration by example.
Savings on passbook A vs early redemption
Let us assume that a household has a capital of $ 10,000. If they choose to place it on an A passbook, assuming that the rate remains at 1% they will generate $ 1,146 of interest in 10 years.
Now assume that this household has a mortgage of $ 150,000 over 12 years, which they took out in August 2012. They therefore have 10 years of repayment. Suppose they benefited from a rate of 3%. If this household injects its capital of $ 10,000 into its home loan, it will gain nearly 1 year of repayment, representing a total savings of $ 3,330.
This example shows that identical capital, used over an identical period, leads to a better return. A logic that Jérôme Robin , Founding President of Cream bank, summarizes: “The French who currently have a mortgage have for the most part subscribed at a rate much higher than those we currently know, and also higher than the remuneration of the passbook A. Under these conditions, making an early repayment is the best way to invest your money, the one that will bring the best profitability, especially for those who have taken out loans at 3% or more… ”.
Booklet A remuneration rate vs mortgage loan rate
The rate of return on the passbook A
The Lite lender is an investment whose purpose is to allow savers to keep up with inflation. Its rate of return is therefore logically focused on the evolution of the cost of living index. It can be revised twice a year, at the decision of the Ministry of the Economy and Finance, which chooses whether or not to follow the recommendations of the Director.
However, the consumer price index of June 2014 shows that the cost of living, increases by + 0.5% over 1 year. Prices remain generally stable overall compared to May, and even decrease in certain food, clothing and health sectors.
From this perspective, it is logical that the rate of return on the Lite lender decreases. And that is what will happen on August 1, 2014, when his remuneration will drop from the current 1.25% to 1%.
Home loan rates
Home loan rates are at an all time low. The Cream bank observatory shows that the lowest nominal rate obtained in the past 6 months is 2.49%. And even at this historically low level, it remains higher than the rate of return on the passbook A. This means that an early repayment will necessarily allow the saver to optimize his money.
The history of mortgage loan rates, as identified by the CSA / Astro Finance observatory, shows us that first-time buyers who borrowed in the last quarter of 2008 were only able to obtain rates above 5%.
In view of these figures, households with capital or even just a savings capacity will find it more beneficial to consolidate their mortgage than to save on a Lite lender, and here’s how.
How to optimize your mortgage with savings
Use the modularity of the deadlines
This tip is for households who do not want to inject available capital into their mortgage, or who simply do not have this capital. They have the possibility of using their savings capacity to increase the payment of their monthly payments. So, rather than depositing a certain sum every month on a passbook A which does not bring anything any more, they will reimburse their mortgage more quickly, and will thus pay less interest in the long term.
Sandrine Allonier , responsible for bank relations with the broker Cream bank, explains. “Most of the loans taken out in recent years are flexible, that is to say that after one to two years allow you to increase or decrease your monthly payment or to make early repayments in exceptional cases… It is a real flexibility for the borrower, with substantial savings! “.
Households with capital can inject it into their mortgage, as an exceptional partial repayment. The lender cannot refuse, if this partial injection is at least equal to 10% of the principal remaining due. However, partial or total reimbursement is accompanied by the payment of compensation. The transaction may therefore not be viable for the borrower.
To calculate the relevance of a partial repayment on a home loan, it is necessary to engage in the following 2 calculations:
- Capital remaining due multiplied by 3%.
- Addition of the next 6 monthly interest payments.
The smaller of the two amounts will be that of the early redemption indemnities. This calculation basis allows the borrower to assess the relevance of the transaction.
The repurchase of mortgage
Owners with capital, or with savings capacity, or both, may find it beneficial to redeem their mortgage. Today, loan rates are at their lowest, if they had borrowed a few years ago above 3.5%, they could perhaps get less than 2.5% today.
If they have greater savings capacity, they therefore have greater monthly repayment capacity. The monthly payments would thus be increased according to this capacity, but taking into account a more attractive rate. This formula undoubtedly leads to savings in interest over time.
It is also possible to inject existing capital into a mortgage loan repurchase. In view of the investment returns today, it is undoubtedly preferable for the saver to return to the fundamentals: the stone.