The mechanism of the loan in fine
Backing an investment to a home loan is a common practice in rental investment. The operation optimizes the tax aspect by “inflating” the annual interest portion to be deducted, while offering a lower monthly payment.
In return, the investor will have to pledge an investment whose initial amount plus the interest capitalized during the period will make it possible to repay the borrowed capital. We are talking about matching an asset to a loan .
Understandably, the difficulty lies in the difficult balance between the return on investment and the interest rate on the credit.
To verify the financial results of such an operation, it is necessary to have a detailed tax study prepared , taking care to build several scenarios. Schematically, we will find the following accounting elements:
- Credit: gross rents and interest on the investment.
- Debit: the property charges related to the owner, the property tax, the costs related to the backed credit (interest and insurance).
Depending on the tax situation it will result in either a property deficit that will be imputed on the tax return or a profit that will be added to your income.
The backing of an investment to a credit also saves the cost of guarantee fees (mortgage or mutual guarantee).
Choice of asset pledged
The crisis that has hit the financial markets today encourages a great prudence in the choice of assets brought in guarantee . It’s a safe bet that the bank will only accept guaranteed investments like the euro support of a life insurance policy.
We will take an example to calculate the amount of the investment required to cover the mortgage . We limit ourselves here to analyzing the evolution of investment and credit over the period.
- Loan: € 150,000
- Duration: 15 years
- Rate excluding insurance: 2.90%
- Insurance on outstanding capital: 0.18%
(1): investment return assumption: 2.75%
- Monthly fees: 1028,60 € + 22,50 € of insurance
- Cost of insurance loan included: 39 211 €
To reach the sum of € 150,000 after 15 years with a yield of 2.75%, it is necessary to place exactly € 100,000.
(1): it is assumed that the bank requires the borrower to be covered only on death and disability benefits as is often the case in rental investment transactions.
Namely : it is possible to reconstitute the capital borrowed from a savings transaction on which the borrower will pay monthly the amount necessary to reach the end of 15 years the sum of 150 000 €.
- To calculate the cost of a credit: simulator
If you wish to know more about the mechanism of a loan in fine, we invite you to read our complete file on the subject. You also have a savings calculator that will allow you to determine the backing required for your transaction.
The backed leasing transaction is a special mechanism used by some companies. It consists in selling to a leasing company equipment (usually manufactured by the company) which makes it available to the company by means of a lease. The latter sub-leases the equipment thus covering the rental expenses related to the operation. The sale proceeds to the leasing company allows the company to reinvest.
The backing of employee savings
with the loan Myself and employee savingsA note an original initiative of Financo, a subsidiary of Crédit Mutuel which offers with the loan Myself a backing to a wage savings contract up to 100% of blocked capital, allowing a early use of funds. During the credit period, the customer only pays the interest, which reduces the monthly payment.
Real estate real estate dismemberment
Some more complex operations propose to dismember the real estate to optimize the fiscal aspect. The investor acquires the property in bare ownership, thus escaping the ISF. The transaction is usually made by backing the loan an investment transaction. At the end of the term, the bare owner recovers the usufruct and thus becomes the holder of a property in full ownership.
Decline in assets: the jurisprudence of the court of cassation
In 2007, the Nimes Appeal Court dismissed clients who had sued their bank for failing to fulfill its advisory duties. The latter criticized their banker for not having warned them of the risks associated with the life insurance contract that had been offered to them in connection with the mortgage loan.
Clients had chosen an open-ended investment profile, the vast majority of which was invested on the stock market. As the markets collapsed, the term capital proved insufficient to repay the loan .
The Court of Cassation considered that the proposed arrangement did involve some risk, but it also considered that the nature of the risk was sufficiently detailed in the contract documents and that customers with 4 management profiles at their disposal, they had had the choice to opt for a more cautious formula.
The court recalled that in this case, the banker had fulfilled his duty to advise by informing clients of the nature of the risks inherent in the investment and thus dismissing the plaintiffs’ appeal.
This judgment of the court of cassation must encourage investors to exercise great caution when taking out a credit back.
It is essential to secure the investment transaction. The yield of the operation must be guaranteed. If you opt for a life insurance policy, opt for Euros support.