Mortgage interest rates are still very low at the beginning of the year, at 1.3% over 15 years and 1.8% over 25 years (rates applied in March 2019 according to Empruntis ). It may seem attractive, then, to make a mortgage for the entire property identified. Yet, this is not the most advantageous formula if you hold a sum that sleeps somewhere (booklet A, life insurance). If this is the case, it is better to mobilize to buy your property . Reducing the number of monthly payments on your loan will pay off in the long run. Explanations.
The historically low interest rate counterpart is that dormant savings are very poorly paid:
- Booklet A or LDDS: 0.75% per annum (or 0.5% in the coming months),
- PEL: 1% per year,
- Life insurance: 1.8% in 2018 (reduced, after social contributions, to 1.4%), down.
The less risky the investment, the less profitable it is. As a result, life insurance has underperformed inflation . Therefore, why keep these dormant investments when they could usefully be used as a personal contribution in a real estate acquisition project.
Example of mobilization of savings in a real estate project
Let’s analyze the situation of a couple wishing to buy a real estate property of 250,000 euros, financed by the loan, and who has a life insurance investment of 30,000 euros with an estimated yield of 1.7% / year .
Acquisition without touching savings
In this case, the life insurance is retained and a loan is contracted for the total amount (250 000 euros), over 25 years, with an interest rate of 1.7% (+ 0.2% for the insurance). The simulator of MeilleurTaux.com provides that monthly payments will amount to 1,065 euros.
1,065 euros x 300 months = 319,500 euros
The amount of interest on the mortgage will amount to 69,500 euros over 25 years . At the same time, life insurance, at a rate of 1.7% per annum, will generate, over these 25 years, a profit estimated at around 13,000 euros, representing net savings of 43,000 euros after 25 years .
Acquisition by mobilizing savings
Imagine now that the couple mobilizes their savings to reduce their mortgage. It will therefore borrow more than 220,000 euros over 20 years, at a lower rate (1.5% + 0.2% for insurance). The monthly payments will amount to 1 098 euros, ie a final amount of:
1 098 euros x 240 months = 263 520 euros
The amount of interest on the mortgage will amount to 43,520 euros over 20 years. Beyond that, he will be able to reconstitute in life insurance the cost difference between the 2 credits (319 500 – 263520). This represents about 56,000 euros, and monthly bonuses of 934 euros. At the end of the 5 years, life insurance revalued at 1.7% has inflated to more than 58 000 euros.
The difference between the two solutions is important: more than 15,000 euros . Is not it worthwhile to mobilize savings to buy real estate? This exercise is even more interesting if you have an A booklet or an ELP . The gain after 25 years could amount to 20,000 euros.