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The Federation of European Independent Financial Advisers

You have received a gift, an inheritance, a bonus or have accumulated savings in your accounts and you are wondering how to best use this amount, we will analyze together the different points to take into account in this decision making.

Precautionary savings:
The first rule will be not to mobilize all your liquidity and to keep free capital. Real estate is not quickly available capital; property can take a long time to sell, and it will take several weeks for the investment transfer to be transferred to your bank account.

This precautionary sum should rather be available in a current account to allow you to cover your regular costs (working capital) and to deal with a possible unforeseen event. For greater security, it should be equivalent to three to six months’ salary, especially if you have children.

Prepayment Fee:
If you choose to repay your loan, the first step will be to check your contract (or contact your bank branch). If the amount of early repayment charges (or early repayment penalties) is too high, paying off this debt could prove to be too expensive (on average, the charges amount to 3% of the outstanding capital).

On the other hand, if you had negotiated a 0 fee when signing the loan, you will then have to compare the rate of your loan and that of your investments.

Compare the rates:
If the rate on your credit is low, it is surely interesting not to touch this loan; we can then qualify it as good debt.

However, the rate of return on your savings products will have to be higher than this credit rate. But with a Livret A having a rate of 0.75% since 2015 and the return on the life insurance fund in euros which has been falling steadily since the 2000s (100% guaranteed fixed investment), even surpassing inflation (evolution consumer prices) can be difficult.

Even the most cautious investors must now choose investments with (at least) a variable part, while adapting to their risk profile, in order to obtain superior returns that will cover the interest rates of the borrowing and will earn money. (unit-linked life insurance / SCPI / bonds / shares / investment funds, etc.)

The advantages of real estate credit:

A real estate loan can allow you to develop your assets via a leverage effect.

Continuing to pay your monthly payments could allow you to diversify your assets towards investments or to make a new loan for a new real estate purchase (if possible rental and with rents equal to or greater than your new monthly payments).

It is also possible to reduce your taxation thanks to debt, in particular as part of a rental investment or in the case of an inheritance.

As often we can not establish a general rule to answer this type of question. It all depends on your situation, your banking contract, your investment returns or even the age of your loan (because you pay much more bank interest in the first years).

Getting out of debt can be psychologically satisfying, but in many cases that early repayment will not prove to be financially attractive. It will be important not to make a quick and emotional decision but to plan and calculate those decisions.

The Spectrum group in Barcelona offers to study your situation free of charge in order to help you, advise you, guide you or guide you in your heritage initiatives.

In addition, in Spain as in France, Spectrum has a “mortgage broker” section to help you benefit from the most advantageous rates.

Do not hesitate to contact us in order to obtain professional answers to the questions you have.


The above article was kindly provided by Cedric Privat from The Spectrum IFA Group and originally posted at: