A French Hybrid Mortgage is a good option for people wanting the advantages of an interest only mortgage without the risk of being unable to pay off their French mortgage later.
French Hybrid Mortgage Overview
French Hybrid mortgages, also called a Prêt Multipalier, are deferred capital repayment mortgages.
These are mortgages whose repayment is divided into two phases:
- An initial interest only phase
- A concluding capital repayment phase
A French Hybrid mortgage is good for people who need to minimise their French mortgage repayments in the early days of French property ownership. Maybe the property needs improvements. Maybe the current exchange rate is unfavourable.
Interest only phase
During the first phase, you only pay interest on the whole mortgage amount. Because there are no capital repayments the monthly repayments are lower – typically half the cost of a standard mortgage.
The interest only phase is ideal if you have really stretched yourself financially to make the purchase. Now you need some recovery time.
The interest only mortgage payments are lower if you are waiting for the exchange rate to improve before you buy Euro.
It’s also useful if you need to make improvements to the property before you can rent it out and get some income from the property for the repayments.
During the interest only phase, you are normally free to make early capital repayments, completely without penalty. So a two phase mortgage can be an excellent choice if you are anticipating a capital sum such as a pension lump sum, an annuity or an inheritance.
During the second phase, you must start on the remaining capital repayments.
All the capital must be paid off by the end of the mortgage as initially agreed with the lender.
Your monthly repayments will increase dramatically if you have chosen not to make lump sum repayments during the interest only phase. In effect you are repaying the total sum borrowed over a much shorter period, typically 15 years.
French Hybrid Mortgages are available at both variable and fixed rates.
As you would expect, the rates will be a little higher than the bank’s rate for a standard repayment mortgage. This is because the bank carries the higher risk of unpaid capital through the interest-only phase.
Good or Bad
A French hybrid mortgage can be a life-saver if you need to complete renovations before the rental income starts to flow. The interest only payments in the first period will be so much lower than capital repayments.
However, without early lump sums or regular over-payments during the first phase the required repayments can be shocking. The remaining debt can only be refinanced elsewhere on a capital repayment basis. Hybrid mortgages are really only suitable for borrowers who can reasonably plan to make early repayments or who are confident of selling the property during the interest only phase.