High prices, low credit rates : this is the current situation for a property purchase. On the one hand, the price per square meter remains at a high level – especially in large cities, on the other hand, mortgage rates are at a floor level. Should you take advantage of these advantageous rates to increase the total amount of your property purchase and thus reduce your personal contribution?
What is a personal contribution?
The personal contribution is a reserve of money available to an individual and that he decides to invest in the purchase of real estate. It can come from savings built up over the years or have been passed on from a relative or loved one. When borrowing, the contribution serves as a basic sum and will be essential for the lender to establish the mortgage contract: the interest rates and the repayment terms are not the same with a contribution of 10,000 USD with a nest egg of 100,000!
Indeed, it is possible that with a large personal contribution, the conditions of the mortgage can be advantageous, because an individual with savings inspires confidence. It can therefore be advisable to arrive with the largest possible contribution, because the duration of repayment of the mortgage will be shorter, which will generate in the process a better interest rate. But beware, this is not a generality.
Indeed, in the case of rental investment for example, it may be better to put this time the least possible contribution. It all depends on your project and profile, and it may be good to get advice when the time comes, for example, from a real estate broker.
Should it be spent in full when buying real estate?
Before draining all your savings, it is important to assess your future budget. Because if all the money set aside is spent all at once, it will be much more complicated to face a hard blow such as a job loss or an accident. Before communicating to a credit institution the amount of his personal contribution, it is therefore necessary to isolate a sum which will serve as precautionary savings.
In addition, depending on the economic situation, it may be possible to obtain a loan at advantageous rates. In this case, the bank may recommend reducing their personal contribution. It is therefore recommended to compare the rate of return on savings compared to the actual rate of credit. If the latter is less than or equal to the real rate of return on savings, it may be worthwhile to reduce its contribution.