• Mon. Apr 22nd, 2024

Home loan: how does the pledge work?


Jan 7, 2023
Home loan

Collateral is part of the broad category of guarantees (or sureties). It helps in some way to strengthen the confidence of the bank for your mortgage . Indeed, as for the mortgage , the pledge allows the bank to proceed to the seizure of the pledged goods to obtain the refunding of the installments of the unpaid loan.

However, the pledge is reserved for certain categories of people in that it most often relates to savings and/or financial products. Rather than cracking your life insurance or your PEA to buy real estate, it is in certain circumstances more interesting to make a pledge to make a loan without contribution .

What is collateral?

To understand the collateral, it is necessary to make a small reminder on the guarantees and to

personal guarantees (deposit) where a person undertakes to pay the bank in the event of default by the borrower. When you take out a loan, this is the mandatory guarantee, most often taken out via a surety organization (such as mortgage credit) or, failing that, via a natural person (a member of your family for example);

The mortgage must relate to real estate, that is to say a house or an apartment. The owner retains the use of his property, but grants a right of seizure on it, we then say that this security is without dispossession.

Good to know: Instead of a mortgage, prefer an IPPD (registration in privilege of lender of money) if the property already exists. This guarantee is less expensive than the mortgage.

The pledge and the pledge relate only to movable property:

the pledge relates to material goods (a table, a washing machine, etc.);

the pledge relates exclusively to intangible assets (life insurance, PEA, company shares, etc.).

So, to sum up, collateral is the guarantee that you most often take out on your savings products and other financial investments. As you will have understood, the pledge may concern you if you have substantial savings capable of covering a substantial part of the mortgage.

But suddenly, a question must be on your mind: why not use your savings as a personal contribution rather than taking out a mortgage?

Without divulging the rest, pledging savings can have real financial advantages provided you opt for the right strategy.

Be that as it may, collateral always has a comparative advantage with other collateral for cost reasons.

Indeed, the mortgage has a significant cost: 0.715% of the value of the mortgaged property in respect of registration fees (not counting the notary’s fees).

Similarly, the deposit with a surety organization is around 0.5% of the amount borrowed.

real estate loan pledgeConversely, pledging only has a registration cost of 136 euros for pledged savings with a value greater than 41,600 euros.

Avoid borrower insurance thanks to collateral

In addition, the pledge may allow you not to take out borrower insurance . And there, it’s really jackpot, since the latter can represent a significant part of the monthly repayments. Ideal for people of a certain age and reduce the overall cost of your mortgageĀ  !

Improve your borrowing capacity through collateral

Another advantage: borrowing capacity . Collateral is certainly the best guarantee you can offer to the bank on several conditions:

the pledged savings are sufficiently liquid, i.e. the investments can be easily transformed into cash (shares in large listed companies, for example);

the financial products of your savings present a moderate risk overall (life insurance invested mainly in a euro fund for example);

In these circumstances, you could borrow for example up to 200,000 euros for 200,000 euros of pledged savings! But, most of the time, the bank will apply a discount to take into account the level of risk that may affect the net asset value of your savings.

If your debt ratio exceeds 35% , collateral can be a very viable solution to go beyond this limit!

What are the disadvantages of collateral?

the pledge may prevent you from carrying out certain operations on your savings. Unless otherwise stipulated, you will not be able to buy or sell new products (stocks, bonds, investment fund shares, etc.) within your tax envelope (savings product such as life insurance or PEA). It is therefore recommended to include clauses in the pledge agreement allowing the manager of your savings (if you have opted for managed or delegated management) to be able to carry out certain arbitrations to guarantee the sustainability of your investments. Otherwise, opt for risk-free savings (life insurance funds in euros) or savings made up of ETFs or UCITS securities(arbitrage will take place within the investment fund so that you will have little or no transactions to carry out on your savings);

your entire tax envelope (savings account if you prefer) can be pledged. This situation implies that all new contributions to this account will be included in the pledge, without distinction. This can be problematic with a PEA since it is impossible to open several, unlike life insurance or a title account. We therefore recommend that you opt for a partial pledge of the savings account or to pledge a duplicate

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