Cream bank observes an extension of the loan durations with a return of the loans over more than 25 years thanks to attractive new rates offered by certain banks including over 30 years, even 35 years and this, in order to resolve first-time buyers on background of rising prices and falling public aid. Zoom on the latest trends in mortgage and comparative simulations of loans over 25 years and over 30 years. Almost 33,000 USD in purchasing power gain.
In March as in February, certain banks raised their credit rates when others lowered them or left them unchanged Thus, each one with its own strategy according to its policy of conquering customers but also according to its constraints of profitability. However, most banks continue to grant large rate reductions on a case-by-case basis to capture the best profiles.
No real trend at the start of the year
In March as in February, difficult to establish a uniform trend on mortgage rates. Some banks raised their rates from 0.05% to 0.15% while others lowered them in the same proportions. Others still returned unchanged scales after having carried out increases the previous month “Taking into account the significant rise of the rates of public borrowing in February, certain banks made the choice to increase their credit rates even if it is to be less competitive when others, conversely, maintain a strategy of winning over customers by continuing to offer very attractive rates.
In this context, the rate spreads widen depending on the banks but also on the profiles because certain rate cuts only concern the highest incomes”, analyzes Lite lender, director of banking relations at Capital lender bank.
Average rates remain stable in March: we can currently get an average of 1.40% over 15 years, 1.60% over 20 years and 1.80% over 25 years, but at best it is possible to get rates of 1, 05% over 15 years, 1.15% over 20 years and 1.45% over 25 years.
The return of long-term or even very long-term loans (35 years)
Good news for borrowers: after refocusing on loans with durations of less than 25 years for the past 3 years, banks are once again agreeing to grant much longer loans, one of them even offering loans on 35 years ! “In recent years, some banks have refused to lend over 25 years, preferring to limit themselves to a maximum of 20 years. Since the end of 2017, in a context of rising property prices, banks have lent again on more 25 years, including over 30 years, and even 35 years!
Against this backdrop of rising prices in major French cities, more and more banks are offering loans over longer terms, in order to increase the purchasing power of first-time buyers. The latter are increasingly destabilized in the face of the upward trend in stone prices and in the face of the fall in public aid.
Reduce your monthly payments
These offers are reserved more for first-time buyers who take advantage of this extension of durations to borrow more and buy better and bigger, but not only. Investors or multi-owners who do not want to increase their monthly repayments too much can also benefit from these attractive offers. The big news is that the rates have dropped a lot over these long durations, making again these financings which return to the market explains Lite lender.
As a reminder, at the beginning of 2015 the difference between a loan over 25 years and a loan over 30 years often reached 1 point (3% over 25 years against 4% over 30 years), the extension of the duration of the loan then neither allowing to increase the borrowing capacity, nor to lower the monthly payment which could even be higher over 30 years than over 25, with a cost of credit higher by 70%!
In 2018, this gap narrowed considerably to reach less than 0.15% in some banks! For example, we can currently borrow at rates between 1.6 and 1.8% over 25 years and at rates between 1.75% and 2% over 30 years, and even 2.55% over 35 years!
An example ? For 200,000 USD borrowed, you will reimburse 96 USD less each month at the bank (716 USD over 30 years, instead of 812 over 25 years.) With a spread of barely 0.14%.
“In the years 2000-2010, when the market was very dynamic, the extension of the loan durations allowed many first-time buyers to become owners. But at the start of 2012, the downward trend in house prices and the high level of rates made lending over 30 years more risky, leading most generalist banks to stop lending for periods longer than 25 years, as long as as a precaution only to protect borrowers.
We are now witnessing the opposite movement: in a context of rising house prices with mortgage rates which have also fallen significantly, the banks are once again accepting, under conditions of course, to extend the loan periods for maintain the solvency of first-time buyers in particular ”concludes Mr. Lee, Managing Director of Agree Bank. An extension of the loan durations that the broker Capital lender bank is already contrasting in his borrower profiles…
As proof, in early 2018, first-time buyers borrow on average 151,713 $ over 22 years and 2 months, against 141,860 $ over 21 years and 10 months in the 1 st quarter of 2017; and this with less contribution (26,329 USD currently against 28,077 USD a year ago) but with stable revenues (around 37,000 USD).
From 25 to 30 years old: a gain of 32,997 USD in purchasing power!
Long durations remain attractive thanks to the drop in rates and prove useful in resolving first-time buyers in a context of rising prices, summarizes Lite lender.
With an equal monthly repayment (1000 USD per month), a couple of borrowers can gain nearly 33,000 USD in additional purchasing power by extending the loan by 5 years. For example, borrowers can buy property at 279,321 USD by taking out a loan over 30 years, while over 25 years their borrowing capacity capped at 246,324 USD.
In return, they will pay an additional 14,486 USD to the bank. In fact, over 25 years the total cost of the loan amounts to 43,581 USD compared to 57,767 USD over 30 years. The price to pay to be able to buy bigger. And this with a spread of barely 0.14% (1.64% * over 25 years against 1.78% over 30 years). Take advantage of it too. Go!