The calculation of the French mortgage: installments and interest rates

The calculation of the French mortgage gives the consumer a loan repayment plan in constant installments, guaranteeing stability and security in payments. The loan consists of a financial commitment that should not be underestimated: it is certainly a fundamental loan to be able to buy or renovate a property, but it also offers the debtor a particularly long repayment period. The value of the installments may depend on several factors: from the loan amount to the cadence of payments (usually monthly) up to the characteristics of the loan itself.

The method of calculating the installment of the chosen loan also greatly affects

The calculation of the French repayment schedule is a particular formula for counting the composition of each installment. The installment used to repay the loan periodically is in fact normally composed of a principal and an interest share. The first is the part of the loan received that is returned with that payment, while the interest portion includes the interest that is paid on that occasion. This composition varies according to the chosen calculation method.

The calculation of the French repayment schedule requires that the installment amount always remain the same for the duration of the repayment period.

For this reason, we speak of amortization in constant installments

This result is achieved through a careful balance between the share of capital and interest. The first installments will contain a very significant interest rate, because they are calculated on a residual amount to be repaid very large. On the contrary, the principal amount will be reduced. To maintain that value for all the installments, the interest rate gradually decreases as the residual capital decreases, while the capital share tends to rise. In this way, the consumer knows from the beginning that the amount of the installment will be one and only one.

At this point, one might ask how the French variable rate mortgage payment can work, given that by definition this rate varies following the trend of some reference indices. How to keep the installment amount established in the contract constant, despite fluctuations in interest? This result is achieved by changing the duration of the loan and the number of installments to be paid: if therefore the rate decreases, reducing the interest rate, the number of installments will also decrease, so that in each payment the principal amount rises and guarantees a constant value. .