How does a mortgage work?
A mortgage is a bank loan used to finance the purchase of real estate. The bank lends you a sum that you repay in monthly installments over a fixed period, usually between 10 and 25 years. Each payment includes a portion of principal and interest.
The amortization schedule
The amortization schedule details month by month how your payments are split between principal and interest. At the start of the loan, you mainly pay interest. This portion gradually decreases in favor of principal repayment.
Borrower insurance
Life insurance is generally required to obtain a mortgage. Its cost can be calculated on the initial capital (fixed rate) or on the remaining balance (decreasing cost). Since the Lemoine law (2022), you can change insurance at any time.
Frequently asked questions
The monthly payment is calculated using the amortization formula: M = P × [r(1+r)^n] / [(1+r)^n - 1], where P is the borrowed capital, r is the monthly rate and n is the number of payments.
The APR (Annual Percentage Rate) is the rate that includes all mandatory loan costs: interest, insurance, application fees. It's the only reliable indicator for comparing loan offers.
Deferral allows you to postpone principal repayment. With partial deferral, you only pay interest. With total deferral, interest is capitalized (added to principal). Useful for off-plan purchases.
Fixed rate protects you from rate increases and keeps your payments stable throughout the loan. Variable rate can be advantageous if rates drop, but risky if they rise. In a high-rate environment, fixed rate is generally recommended for security.