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How does the bank set the interest rate on a loan?

In 2014, 96% of mortgage loans were granted at a fixed rate. A percentage in a clear progression, since it was 80% in 2004. However, most of the borrowers, having opted for a variable rate since 2008, are winning. Boosted by fierce competition from banks, anxious to win new customers, each interest rate may experience discounts depending on the quality of the file submitted.

What is the level of fixed rates?


By favoring fixed rates at adjustable rates, the borrower knows the amount of his monthly payments over the duration of his loan. Otherwise, variations would be automatically made – downward as well as upward – depending on the benchmark.

Currently, the fixed rate on a mortgage can be between 0.50% and 1.90%, for a loan over 7 years. It will be 1.08% to 2.60% over 20 years, while it will reach 2.05% to 3.25% for a period of 30 years. (Source: France Transactions on 01.11.16)

These exceptionally low rates have contributed to the disappearance of variable rate loans, which now represent only 0.1% of the loans granted at the end of June 2016, whereas they represented 6.2% in 2013 and 22.1% in 2004. 

How does the bank set the interest rate on a loan?

How does the bank set the interest rate on a loan?

Each bank sets its interest rate based on several factors:

  • The cost of refinancing: in other words, the price at which the bank purchases the loan money. Today, it relies on long-term products for loans at fixed rates and on Euribor 3 or 12 months, for loans at variable rates.
  • The establishment’s margin: traditionally between 0.50 and 1.50%, it is built according to the estimated risk.

In other words, the attractiveness of the interest rate is directly linked to the file presented: if the latter presents little risk, it is possible to obtain discounts from 0.20% to 0.30% by compared to the official price list . And brokers know how to play on these criteria perfectly!

What are the criteria for improving my rate?


Currently, the banks are waging a bitter war to win new customers. The goal is to get good records (naturally!), With at least 10% of the amount borrowed in personal contribution, stable income and a reasonable debt ratio. And, ideally, not register an overdraft on your bank accounts.

But not only, since the banks also welcome first-time buyers, with more modest resources. Public receiving financial aid as (Ready to Zero rate) PTZ reinforced since 1 January 2016.

However, not everyone takes advantage of these attractive rates, since banking establishments look very closely at certain additional criteria, to minimize their risks: the added value of their customers (CDI status, marital status, etc.) and the nature of the property to facilitate, if necessary, its resale (location, general quality, etc.)

The mortgage broker is fully aware of the criteria of its partner banks: he will be able to manage your loan file until an optimal offer is obtained, negotiating, at the fairest and fiercely, the rate, the insurance and the various fresh.


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