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Understanding the relationship between the Usury Rate and Bank Loans for a Paris apartment.
How does the usury rate work, and why is it important for home loans? Let’s break it down.
Understanding Usury Rate
The usury rate is a legal limit on the total cost of a home loan, including interest, insurance, guarantees, and other associated costs. This rate is in place to protect borrowers from excessive debt and high interest charges.
Calculating the Usury Rate
The Banque de France determines the usury rate each quarter. They take into account the interest rates offered on home loans from the previous quarter. To set the usury rate, they calculate the average rates and then increase them by a third. These new rates are published every quarter in the Journal Officiel and vary depending on the loan duration and amount borrowed.
Monthly Publication in 2023
In 2023, there’s a change: usury rates will be published monthly from February to December. However, they will still be based on the average rates from the previous three months. This change aims to adapt to rapidly changing interest rates in the housing market.
Current Usury Rates in September 2023
Here are the usury rates for different types of home loans in September 2023:
- Fixed-rate mortgages for less than ten years: 4.23%
- Fixed-rate mortgages between ten and less than twenty years: 5.28%
- Fixed-rate mortgages over twenty years: 5.56%
- Adjustable-rate mortgages: 5.13%
- Bridging loans: 5.53%
Consequences of Exceeding the Usury Rate
If your loan’s Annual Percentage Rate (APR), which includes all the costs mentioned earlier, exceeds the usury rate, the bank cannot approve your loan application. This measure is enforced to prevent borrowers from facing unmanageable debt.
Factors Affecting Usury Rate in 2023
The rapid increase in real estate rates in 2023 has impacted the usury rate. The usury rate is based on previous quarter rates, which means it may not reflect the current market conditions accurately.
Who May Be Affected by Usury Rates
- First-time Buyers: Young buyers with limited income and down payments are often at risk of hitting the usury rate limit due to higher interest rates.
- Seniors and Health Risks: Older individuals or those with health risks often pay more for insurance, which can push their APR above the usury rate.
- Investors: Investors, who are considered riskier by banks, may face higher rates and insurance costs.
How to Stay Below the Usury Rate
There are several strategies to avoid exceeding the usury rate:
- Negotiate Interest Rate: Negotiate with the bank for a lower interest rate, especially if you have a substantial down payment or are willing to place your savings with them.
- Lower Ancillary Costs: Negotiate service charges to reduce costs included in the APR.
- Choose Adjustable Loans: Consider variable-rate loans with a lower usury rate, but be aware of potential rate increases in the future.
- Delegate Insurance: Opt for insurance from an independent provider to reduce insurance costs and lower your APR.
- Adjust Coverage: Adjust the loan-to-value ratio to reduce insurance costs, but be cautious as it comes with more risk.
Planning for Success
To secure financing and stay below the usury rate, it’s advisable to prepare well in advance. Clear your financial records, build up your down payment, and obtain insurance quotes. This preparation will help you negotiate better terms and explore options to avoid exceeding the usury rate. Additionally, take advantage of the monthly publication of usury rates during 2023 to navigate the changing market conditions effectively.