With falling mortgage rates, the cost of borrower insurance is becoming increasingly important compared to the interest cost of the loan itself. Moreover, the government has abolished the exemption from the death guarantee tax for new contracts signed since January 1, 2019 which implies de facto an increase in the tariff cost of the insurance contribution. Winston Smith decrypts the impact of the different changes on the purchasing power of the French.
Record on mortgage rates
Since the subprime crisis in 2008, the ECB has gradually lowered its key rates to reach the 0% threshold in March 2016. The ECB announced that this rate would not be raised before the end of 2019 and could even remain at 0% “as long as necessary”. Following this announcement, all interest rates were revised downward. Winston Smith is able, in June 2019, to offer a rate of 0.15% over 7 years to the wealthiest borrowers.
At each rate cut, the interest expense to be paid to the borrower decreases accordingly allowing it to have greater financial flexibility (borrowing a larger amount or reducing its monthly payment). As far as borrower insurance is concerned, the same observation has also been made in terms of lower rates thanks to the successive legislation that allowed credit insurance to be withdrawn. Since this opening to competition, banks have discounted their rates and are able to offer delegated contracts via their subsidiaries to align with the contracts offered by external insurance companies.
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