We must distinguish between different types of credit:
- Mortgage loan with capital amortization
- Bridge loan and other fixed-term mortgage loans
- Combination of several types
- Mortgage loan with capital reconstitution
1.Mortgage loan with amortization (repayment) of the capital
The most common model is one where you pay the same amount every month (constant monthly payments) : part of the capital, and interest on the amount (balance) remaining due. At the beginning you mainly repay interest and little capital. As repayments are made, the relationship is reversed: the interest, which is less and less important, allows a growing part of the capital to be repaid.
The credit with capital amortization can also be repaid by decreasing monthly payments (constant capital amortization) . Each month you repay the same amount in principal, and interest on the amount remaining due. As a result, every month the amount to be repaid decreases slightly because the interest to be paid decreases over time. This is why it is a question of a decreasing monthly payment. With this formula you pay less interest on your credit in total, but the repayments are higher at the beginning.
2.Bridge credit
Imagine that you buy a new home or that you have it built, but without having already sold the home you currently occupy and which must finance your new project. In this situation, the bridging loan is a solution. You repay the loan in question until the sale of your current home. The proceeds from the sale of this accommodation allow you to put an end to the credit.
In this type of credit, there is no obligation to repay the capital while the credit is in progress . The capital must only be repaid in full at the final maturity of the loan. During the term of the credit, interest is paid on the full amount of the credit since there is no repayment of the capital.
3.Combination of several types of credits
Some financial organizations offer combinations of several mortgage loan formulas. Make sure you fully understand the implications of the proposed formula.
Example
Banking on the fact that you are only at the start of your career and that your salary will in principle increase, you are offered a mixture of very long-term fixed credit (20 years) and a traditional mortgage loan.
With regard to the “ classic mortgage loan ” part, repayments will be made in the traditional way according to the repayment terms defined in the contract.
As regards the " fixed term credit " part, you will only pay the interest and you will have to repay all the capital at once at the end of the fixed credit.
This type of credit makes it possible to borrow a larger amount, but it must be handled with caution: you must be able to save enough because the amount of the fixed-term credit must be repaid in full and in one installment at maturity.
4.Mortgage loan with capital reconstitution
The mortgage loan with capital reconstitution is a loan obtained from an insurance company. Every month you pay a premium (an amount) that allows you to replenish the capital borrowed at the end of the contract. This reconstituted capital will be used to repay the capital to the lender at the maturity of the loan.
In the meantime, you pay interest on the borrowed amount for the duration of the loan.
A Fixed Rate Or Variable Rate Mortgage Loan?
