Gilles, reader of Capitaladdresses the following question: “Hello, I have a booklet A on the ceiling (22,950 euros), a sum which can allow me to completely reimburse the credit from my main residence, which runs until 2033. My monthly payments are 316 euros, with a rate of 1.8%. There is no early repayment penalty. What would you do for me? I really want to take the plunge… ”
Hello Gilles, and thank you for your question, which allows us to approach a frequent dilemma: should we settle your mortgage when you have sufficient savings, or on the contrary keep both the loan and its savings?
Repay your credit or keep your savings: a question of strategy
First of all, if you ask yourself this Gilles question, it is undoubtedly because the rate of the booklet has dropped on August 1 – going from 2.4% has 1.7% -, which makes it less interesting. However, it should be remembered that this remuneration should remain higher in the level of inflation measured in the last months of the year. In addition, it is essential to maintain precautionary savings to deal with unforeseen events (health expenses, repair or unexpected purchase, etc.), and the booklet A is for this the ideal candidate, with its ceiling of 22,950 euros, its warranty in capital, and the availability at any time of your funds.
Thus, even if you empty your booklet A to reimburse your loan in advance, you will have to take care to have between three and six months of salary side on another booklet or a liquid and guaranteed product – such as life insurance in euros – in the event of a glitch. To go in your direction, we can indeed currently find life insurance contracts at boosted rate which will offer you a better return than booklet A, with the possibility of recovering your savings at any time, even if this savings product is usually thought as a long -term placement.
It is essential to have savings placed for a possible other investment
The first imperative will therefore have kept some savings on a placement other than your booklet A. Then, “It all depends on your heritage goals”explains Mathilde Carrier, investment advisor and heritage in Nîmes. If you consider, for example, another real estate purchase in the coming years, “The bank will prefer to go (keeping your mortgage at 1.8%), but with side savings, rather than without loan, but without savings either. Clearly, you will always get a bank agreement more easily with placed savings ”summarizes Mathilde Carrier.
In addition, even without other real estate project on the horizon, you must have in mind that the rate of your loan is not very high, compared to the rates observed today. If you can always assume your carefree monthly payments, be aware that by approaching the last straight line of your loan, you also reimburse an increasing part of the loan, and a decreasing part of interest paid to the bank. Finally, on the inheritance level, remember that by reimbursing your loan in advance, the borrower insurance associated with it also ends. So, “If you die during the loan period, borrower insurance will finish reimbursing it in full, and your children will inherit your financial assets placed. Conversely, if you reimburse the loan in advance, borrower insurance is no longer applicable, and you will send your children a total amount of 22,950 euros of the booklet A which will have been used to settle the loan in advance ”, Recalls Mathilde Carrier.
In summary, your choice, Gilles, will depend on your priorities. If your goal is to reduce your monthly charges and sleep quiet without debt, settle the early loan can be justified, provided you have precautionary savings placed elsewhere. On the other hand, if you have other real estate projects, or you want to keep the guarantees of your borrower insurance to the end, it is often more interesting to keep both a low rate credit and available savings.
