In France, equity release is becoming a popular financial option for owners seeking to leverage the capital accrued on their homes or vacation properties. Consumers of equity release products use this additional money for a range of projects that include acquiring additional properties, financing renovations, or even offering a down payment to a son or daughter to help them get onto the investment property ladder.
The term “equity release” describes the process of freeing available capital from currently owned property. Other terms for this type of loan include cash-out refinance, second mortgage, home equity loan or home equity line of credit.
There is some labeling confusion from country to country. In the UK, equity release is a product also known as a reverse mortgage. The client offers the title of their property to the bank in exchange for a lump sum payment and/or a regular stream of payments from the bank. The owner retains use of the property until death at which time the property is sold and the bank is reimbursed. This is a popular method to supplement retirement income. To be clear, the French banks do not offer this product to date although there is a consumer movement to demand it.
In France, equity release or cash-out refinancing refers to a mortgage where the bank gives you cash and you pay it back in monthly installments. Currently, French banks allow for up to 70% of the value of the property to be released for use in other projects. If the property currently has a loan outstanding, that loan must be refinanced at the same time. The sum of the loan plus cash out must not exceed 70%. This is because the bank will not accept to be second in line behind another lender or claimant in case the borrower stops paying the loan and the property must be seized and sold.
So far 2009 is shaping up to be a buyer’s market with interest rates moving steadily downwards. If you own a French property with some equity, think about an equity release mortgage to obtain a down payment for a second investment property. For many, releasing euros from your French property means you don’t need to change your local currency to euros which can mean a sizable savings. This is how you can use your French property to build wealth.
With the kind cooperation of Tahminae Madani of France Home Finance.