1. The franchise, yes … but in what cases can we postpone the refund?
The franchise is to postpone the start of repayment of the loan, so the beginning of monthly payments. It applies in cases where the property for which you have applied for the loan is not available immediately.
In which cases is a franchise made?
Generally, the franchises are put in place if you buy in the new or in the old with works, whether for a principal residence or a rental investment :
- For purchases in the new ( off-plan , house construction ), housing is not habitable from the beginning of financing: the delivery is actually made months or years after the first fundraising.
- For purchases in the old , it often happens that a lot of work is needed before you can move in. The accommodation is also not habitable at first.
In the case of a rental investment, the franchise authorizes you to start repaying the loan only once the housing concerned can accommodate a tenant. Generally, the bank accepts a franchise of maximum six months in these cases.
Finally, it is not impossible to get a franchise for a purchase in the old without work, but it is exceptional.
What advantages to the franchise?
In all cases, a deductible can be set up between the date of purchase of the property and the end of the works . You borrow but do not start repaying until later, when the work is finished. So, why is it top?
Without this deductible, the borrower should accumulate expenses:
- monthly payment of credit for new housing
- potential costs related to previous housing.
This situation is rarely sustainable for borrowers: banks understand it (phew!) And the franchise is widely accepted.
2. Partial Franchise or Total Franchise?
Depending on the repayment capacity and preferences of the borrower, the deductible may be partial or total .
The difference between the two types of deductibles relates to the management of interim interest , that is to say the interest on the funds released before the delivery of the good.
With a partial deductible, you pay the interest from the first release of funds, every month: only the return of capital is deferred. On the other hand, with a total deductible interim interest is also deferred.
How to make your choice? Remember first that the total deductible is intended to reduce as much as possible the amounts to be paid before the delivery of the good , but this advantage has a cost : the deferred on the interest intercrow generates interests in addition … interest on the interests finally!
In the case of a total deductible, the payment of interim interest can be made in two ways:
- or you pay them at once to the delivery of the property
- or they are added to the total capital financed and you pay them over the entire term of the loan.
The second option is an advantage for your cash at first but do not forget that interest will be generated on a capital then higher for the duration of the loan.
By subscribing to a real estate loan with Caisse d’Epargne , for example, you can benefit from a partial or total deductible according to your needs. The total or partial deductible with the Credit du Nord can be set up for a maximum duration of 24 months.
2. A case study to help you choose your type of franchise
Take the example of the purchase of a new property for € 200,000 (excluding notary fees and guarantee fees), which will be financed by your contribution. The deadline announced by the manufacturer for the delivery is two years, and constitutes the schedule of calls of funds following: 50 000 € with the signature of the authentic act at the notary, 125 000 € a year later, and 25 000 € on delivery two years after the signature at the notary. You opt for financing over 20 years (2 years during construction, and 18 years after receipt of the property) at a rate of 2%.
To finance the project, 4 options are possible with different terms for the franchise, from the most advantageous from a cash point of view to the least expensive these options are compared in the table below.
|Without franchise||Partial deductible||Total deductible and interest payment at the end of two years||Total Franchise and Reinstatement of Interest|
|Total cost of credit||$ 43,720||$ 48,820||$ 48,875||$ 49,693|
|Cash Year 1||$ 13,540||€ 1,300||300 €||300 €|
|Interests||€ 3,915||1,000 €||0 €||0 €|
|Amortization||€ 9,325||0 €||0 €||0 €|
|Insurance||300 €||300 €||300 €||300 €|
|Cash Year 2||$ 13,540||€ 3,800||300 €||300 €|
|Interests||€ 3,727||€ 3,500||0 €||0 €|
|Amortization||$ 9,513||0 €||0 €||0 €|
|Insurance||300 €||300 €||300 €||300 €|
As you can see, the longer you delay the repayment, the more the total cost of credit increases. However, if you need cash, the deferred credit is a good solution.
3. Franchising: a way to generate cash
Do you have a franchise and the work in your new property ended earlier than planned? Smile, you are a winner! This situation will allow you to clear cash before entering the repayment period of your loan.
During this time, you do not pay the work charges (now completed), perhaps even the cost of your old home either (if you were able to move in) and the bank is waiting for the return of capital later.
This is a time when your cash should be better and you can enter more serenely in the next step: pay the money back to the bank. What else can I say except that the deferred credit will have served you well?