Although little-known, the in fine loan has many advantages. The in fine loan is a “non-amortizable” loan aimed primarily at individuals residing in France and SCIs holding real estate assets. It is generally granted to property owners with a good income and no outstanding debts. It’s a particularly attractive way to build up your property portfolio without having to touch your savings. Here’s how it works.
What is a bullet loan?
As its name suggests (in fine = at the end), the in fine loan allows the borrower to repay interest monthly throughout the term of the loan, but to pay the capital only at the last instalment. It offers a degree of flexibility, with lower monthly payments than an amortizing loan. In fine loans are generally granted for a minimum period of 5 to 7 years and a maximum of 10 years.
Interest rates are fixed for the duration of the loan since they are calculated on the initial loan amount. These rates are higher than for a “conventional” loan, yet they can be deducted from rental income to obtain tax relief.
At the end of the term, the loan can be repaid in one of two ways: as a lump sum or in several partial prepayments.
Repayment in one lump sum:
If the subscriber chooses to repay the principal in a single instalment, he or she will not have to pay any interest or additional charges. For this type of repayment, banks generally require the borrower to build up savings as collateral.
This can be done by making a monthly payment into an associated investment product, known as a “pledge”. In other words, the savings are reserved in favor of the bank in the event of a problem.
GOOD TO KNOW: to know the amount of your loan, it’s important to know that the mortgage ratio is generally between 30% and 60% of the value of the property, but this depends on your banking partners.
Early repayment :
If the borrower opts for early repayment, two options are available. They can opt for full prepayment at any time, or for several partial prepayments, subject to prepayment charges that the bank will specify in advance. Early repayment costs a maximum of 6 months’ interest.
About the exit from the bullet loan, repayment of the principal, banks generally offer three exit solutions:
- Withdrawal of savings or investments: some people prefer to keep their savings for investment purposes and take out a loan. With a bullet loan, you leave the inertia of the investment to pay off the loan in future years;
- Sale of real estate,
- Sale of business assets.
Who can benefit from a bullet loan?
Not everyone can take out a bullet loan. To qualify, certain conditions must be met. Only individuals residing in France, real estate SARLs and SCIs with real estate assets can apply for a bullet loan.
Regarding their professional status, they may be company managers, sophisticated investors, employees, annuitants or even retirees, but they must be property owners.
GOOD TO KNOW: this is a very interesting loan for senior citizens, who sometimes find it difficult to finance this type of operation, as they are limited by the age at which the loan ends. For the bullet loan, the maximum age is 95.
Granting conditions are stricter than for an amortizable loan, as banks must verify the borrower’s ability to repay the capital at the end of the term. In fact, borrowers must be able to prove that they have sufficient income to meet their monthly repayments and determine at the outset how they can raise funds to repay the capital in a single lump sum.
Why take out a bullet loan?
This loan is reserved for people wishing to make a rental investment and who have a substantial personal contribution. You can opt for a bullet loan if you wish to:
- Buy a second home for a limited period,
- Acquire a new principal residence while awaiting the sale of your current home,
- Acquire an investment property over a 10-year period.
What are the costs and insurances inherent in this type of loan?
A bullet loan is naturally more expensive than an amortizing loan, as the risk for the bank is greater. Like many other types of loan, bullet mortgages come with an underwriting fee and an interest rate.
GOOD TO KNOW: since March 2023, and in view of current real estate and tax developments, the usury rate is set to rise every month, which could lead to regular increases in bank rates over the coming year.
Mortgage guarantee fees, meanwhile, are around 1.8% to 2%. Subscribers to this type of loan are generally high-end, multi-owner profiles. As for the level of indebtedness, this is standard and follows the usual rates, which are generally between 35 and 40%. Here again, however, prices vary from one bank to another. Death and disability insurance is optional for these types of mortgages, but the cost may vary according to the age of the borrower. To be sure, it’s best to contact your bank.
As you can see, the bullet loan offers many advantages for high-tax households with a substantial financial contribution who wish to invest in rental property. By opting for an interest-only loan, you can reduce your property income, thereby lowering your tax bill. This type of loan offers the possibility of a financial package with attractive repayments over a short term, and without having to release a down payment. For people with investments, it can be useful to hold on to them for a better return.