The home loan, intended to finance the acquisition of real estate, offers relatively advantageous financing conditions at present. But the perpetual rise in the price of real estate in recent months has endangered the ability of households to get into debt. Banks have no choice but to offer loans up to 35 years more regularly. This spread of debt over a longer period allows borrowers to realize their project.
Financing offers that do not sufficiently compensate for the rise in prices
Financing offers from credit institutions seem ideal. Real estate rates are at historically low levels and allow borrowing at a reasonable cost. According to the Credit Housing Observatory / CSA, the average interest rate in August was identical to July, ie 1.43%. Even for a credit term of 25 years, the proposals are interesting since the average rate is 1.64%.
However, households with a project to finance are facing a rise in prices on the real estate market. If the revaluation has a lesser impact on certain medium-sized cities, prices are constantly on the rise in attractive places. The capital claims for example an investment of almost $ 10,000 per square meter in certain places, or even more. These increases jeopardize the ability of households to finance their property for an average loan duration of 18 years.
Borrowings over 35 years are democratizing
To remedy this complex situation, banking professionals have taken the initiative to make the conditions for granting mortgage loans more flexible. Henceforth, they begin to lend for longer repayment periods, when they were fearful of the risk over time. The credits over 35 years are therefore more and more suitable to be offered to customers who request a longer spread of the debt. The objective of this practice is to obtain a suitable debt ratio so that borrowers can support their monthly payments.
Now, 35-year credits significantly increase the total cost to amortize. Also, this situation involves a long-term risk for the ability of households to pay their monthly payments. Over so many years, a negative change in personal and professional situation can jeopardize the creditworthiness of borrowers. Therefore, it is appropriate for households and banks to properly measure the risk of a loan with such a duration.