Real estate loan: with the drop in rates, is it in your interest to borrow at a variable rate?

Real estate loan rates are expected to fall to 3% in the first months of 2025. Is it possible to take advantage of this drop to reduce your monthly repayments by taking out a variable rate property loan?

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Falling this December to 3.35% on average, over 20 years, real estate loan rates “could go down to 3% during the first quarter»in the wake of the latest rate cut by the European Central Bank (ECB), predicts the broker Vousfinancer. “Wouldn’t it be in my interest to take out a mortgage loan variable rate ?»asks Marc, who wants to take advantage of the fall in interest rates and real estate prices to buy an apartment. As a reminder, there are two main categories of home loans: fixed rate loans and variable rate loans. In the case of a fixed rate loan, the interest rate does not change throughout the duration of your loan. Your monthly repayments will therefore always be the same.

In the case of a variable rate loan, the interest rate changes according to a reference data, generally the Euribor. This is the rate at which banks lend money to each other in the short term, a rate which varies depending on those of the ECB. If it drops between taking out your variable rate loan and its annual review, then your interest charge and, therefore, your monthly credit payment, will decrease. But if the Euribor increases, your monthly payments will be increased. “A variable rate loan can turn out to be a formidable trap if rates increase», Underlines the Ministry of the Economy on its website.

Capped variable rates

“Variable rate credits are aimed at a clientele ofrental investors or informed second-time buyers, who do not need to borrow over a long period, nor a large amount, just to complete a bridging loan in the event of resale of their first property, for example”warns Sandrine Allonier, spokesperson for Vousfinancer. To limit this risk of rising rates, variable rate property loans are generally “capped”, that is to say capped. Sandrine Allonier cites the example of a mortgage loan with a variable rate of 3.80%, capped at 2 points. This means that in the event of a rise in the Euribor, your credit rate cannot exceed 5.80%. The other side of the coin is that if the Euribor falls, your rate cannot fall below 1.80%.

Sandrine Allonier had difficulty finding this example. And for good reason! In 2023, 99% of new home loans were granted at a fixed rateaccording to the Prudential Control and Resolution Authority, the banking watchdog. “In France, you become an owner in the most secure way in the world. All countries offer variable rate mortgages, except us. It’s cultural and it helps avoid putting borrowers in danger.”approves Maël Bernier, spokesperson for the broker Meilleurtaux.

Real estate loan rates at best 3% in the coming months

“Appearing in the 1980s, variable rate property loans were a response to the problem of very high rates, between 9 and 16%”so much so that it was possible to bet on their decline, recalls Artemis Courtage. But “they almost disappeared in the context of very low rates that we experienced between 2018 and 2021, which made them lose interest”explains Maël Bernier. And, for the Meilleurtaux spokesperson, it was a year ago, when credit rates were over 4%, that Marc should have questioned the relevance of taking out a variable rate loan: “We will have rates at 3% at best in the coming months, not below. Central banks are not at all in a position to massively inject liquidity into the markets, which led to rates of 1%..