Are you about to take out a mortgage to finally acquire the house or apartment of your dreams – or have you already signed your contract? With a mortgage, you now have an obligation: to repay the amount borrowed during the entire period defined in advance with your lender. To avoid unpleasant surprises when paying your monthly installments and / or to choose your loan with full knowledge of the facts, this section of the Practical Guide on mortgage is devoted to the issues surrounding the issue of loan repayment.
Have you taken out a mortgage with a bank or lender? From now on, you must return this sum in spurts over the years, because by signing your contract you have in fact committed yourself to repaying the borrowed sum, under the conditions stipulated in the document.
Here are the 3 questions to ask yourself before you start to settle your debts:
Based on three criteria: first, the amount you borrowed; second, your loan repayment capacity; finally, the interest charged by the lender. Thus, a loan repayment relating to $ 200,000 at 3% interest with monthly maturities of $ 1,000 will take much longer than for a loan of $ 100,000 at 1.5% by making $ 2,000 each month..
You have to repay a fixed amount each month: this is called a “monthly payment” (in the same way that you pay your electricity or telephone bill each month). The importance of the monthly payment depends on the amount subscribed and your ability to repay the loan. The monthly due date is set by both parties or, by default, on the date on which the release of funds by the notary took place.
The bank or organization that granted the loan gives you a “amortization schedule”. This tells you the amount of the mortgage, the loan repayment period, the interest rate, the repayment method, the amount of the monthly payments, etc. Everything you need to know in order to calculate at all times the distance covered since your first payment – and the distance you still have to cover to conclude your loan repayment!
As soon as the funds have been released by the lender at the request of the notary, you start your loan repayment every month: this is the period for amortization of the mortgage.
The monthly payment consists of:
The loan repayment monthly payments are automatically debited from your checking account.
There are different methods for repaying the mortgage you have taken out: by constant installments, by flexible installments, by deferred amortization, by “in fine” repayment or by anticipation.
It is the most common method for loan repayment: the monthly payments are fixed in agreement with the lender and remain identical for the entire duration of the loan. You pay the same amount each month until you have returned the entire amount borrowed. So, no surprises!
You can plan a long-term change in the amount of monthly payments: this is called loan repayment by flexible terms. This modality allows you to change the amount to be paid each month, downward or upward, for example in the event of a salary reduction (so that you can always keep a debt ratio below 33%) or, at the opposite, in the event of an increase in your income (to finish repaying faster).
It is also possible (in some contracts) to suspend deadlines entirely for a limited period of time, for example if you are going through a financially difficult moment or if you suffer a parenthesis of unemployment.
Under this method, you start by repaying the loan interest before repaying the capital in a second step (“deferred”). The interest repayment period is fixed in advance.
In this loan repayment model, you pay only the interest to the lending institution, before repaying the entire principal, in one go, at the end of the contract.
The prepayment method allows you to pay a larger amount of money, in addition to your monthly payments. It can be partial (you inject a certain amount to your amount already reimbursed in order to reduce the duration of your mortgage) or total (you pay all the remaining amount due, thus putting an end to your engagement with the lender).
Read our section on the prepayment guide for more information.
Certain types of real estate loans assisted or regulated – loan at zero rate, loan with PEL or CEL, 1% Housing, etc. – may provide for different loan repayment terms. Check with your bank for the exact conditions.
Before making a decision concerning your loan, always start by carrying out a mortgage loan simulation: this will allow you to visualize in advance the amount of monthly payments that you will have to repay according to the duration of the loan and your repayment capacity credit.