Mortgage Loan: Is the Yield on Variable Rates Good News or Bad News?

Adjustable rate mortgages, which were responsible for starting the 2008 financial crisis, still smell of sulphur, especially in France where they never had much success. The principle of these loans can actually put off those who want to borrow money: the loan rate is usually lower than the average for fixed-rate loans in the first year, but after that it changes according to the size of the money’s annuity.

An interesting prospect if one expects interest rates to fall, as was the case in the early 2000s when these adjustable rate loans attracted a number of French borrowers. When interest rates are low, as they have been in recent years, these loans have few advantages.

Adjustable-rate mortgages, which disappeared from bankers’ shelves, are reappearing. This phenomenon is all the more surprising given that interest rates have risen sharply in recent months.

In July, clients were able to borrow from broker Cafpi at an average fixed interest rate of 1.48% over fifteen years, compared to 1.29% in June; 1.58% over twenty years versus 1.42%; and 1.75% over twenty-five years versus 1.57%. And if the 10-year Treasury Bond Rate (OAT), which hit 2.39% in early June, falls back below 1.7% (its May level), the European Central Bank’s (ECB) recent interest rate hike does not bode well for the the future.

Counter-proposals in variable sentences

However, some institutions offer variable rate mortgages. “Far from being generalized, the movement affects some mutual banks [Crédit agricole, Crédit mutuel, Caisse d’épargne, Banques populaires…]but it can beJudge Mael Banier, spokesman for the Meilleurstaux estate agent.

“A regional bank has restored it to its original size, but only wants to use it for specific needs such as a bridging loan. Another regional bank told us to start a new one in September.” observes Cécile Roquelaure, study leader at Empruntis. “We are seeing some banks starting to make counter-proposals on floating rates. Others have confirmed to us that they are very keen to promote these loans across their commercial network and with the brokers they work with.” let’s say at Preto. For its part, broker Cafpi has started offering this type of credit to some of these clients.

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