A prêt in fine is an interest-only loan: you pay interest and insurance every month and repay the whole capital at the end of the term. In France it is mainly offered by private banks, usually for loans above roughly €1 million, in exchange for investments you place with them and pledge as security. Monthly payments are much lower than on a repayment loan, but the total interest is higher. It suits borrowers with substantial investments who want to keep them invested.
How an in fine loan works
The standard French mortgage is a repayment loan (prêt amortissable), where each instalment repays some capital. With a prêt in fine, the capital never falls during the term. You pay interest on the full amount every month, plus insurance, and repay the capital in a single payment at the end, from investments, savings or the sale of an asset.
Because the debt stays at its full amount, the insured amount does too, and so does the premium. Both interest and insurance count in the all-in rate, which must stay under the legal cap as for any other loan.
Private banks and pledged investments
Retail banks lend on repayment loans. In fine loans come mainly from private banks, usually above roughly €1 million, and they want something solid behind the final repayment. The usual answer is a pledge (nantissement): you place investments with the bank, such as a securities portfolio or a life insurance policy, and pledge them as security. The bank decides how much must be pledged.
The pledged portfolio stays invested and keeps earning. The bet is that it grows faster, after tax and charges, than the interest you pay on the loan. Read the clauses on what happens if the portfolio falls in value before you sign.
Worked example: €1 million over 15 years
Assumptions: a €1,000,000 loan over 15 years at a fixed 4.00%, with insurance and fees left aside.
| Item | In fine | Repayment loan |
|---|---|---|
| Monthly payment | €3,333 | €7,397 |
| Capital owed after 15 years | €1,000,000 | €0 |
| Total interest | €600,000 | €331,438 |
The in fine loan costs €268,562 more in interest and leaves €1 million to repay on the last day. In exchange it frees €4,064 a month, which can stay invested. Whether that pays depends on what the investments earn after tax and charges, which nobody can know in advance. The calculator shows the repayment-loan side of this comparison for your own figures.
Who it suits
- Wealthy borrowers with investments they would rather pledge than sell, often with an existing relationship at the private bank.
- Buyers expecting a large sum later, such as the sale of a business or another property, who can show the bank where the capital will come from.
- Older borrowers for whom a short repayment loan would mean instalments too high for their income, if a private bank will lend to them.
It suits few first-time buyers. If the investments fall in value or the expected sale does not happen, the full capital is still due on the last day.
The tax angle, with caution
Two French tax rules come up with in fine loans. Neither makes the loan right for you on its own, and both depend on your situation.
- Rental income. If you let the property unfurnished and declare under the real regime (régime réel), loan interest paid during the year is deductible from French rental income. With an in fine loan, the interest stays at its full level for the whole term instead of falling.
- Property wealth tax (IFI). IFI applies when your French property is worth more than €1.3 million net. Debt taken to buy it is deductible within limits, and for an in fine loan the deductible amount is reduced each year as if the loan were repaid in equal parts. On €1,000,000 over 15 years, only €666,667 can be deducted once five full years have passed.
Your home country may tax rental income and wealth differently. French Tax Online can check how these rules apply to you before you choose the structure.
Next step
In fine loans are negotiated case by case with private banks. Tell us the price, the loan you need and the assets you could place with a bank in the eligibility check, and we will introduce you to one broker who works with private banks.
Questions
What is a prêt in fine in France?
An interest-only loan. You pay interest and insurance each month and repay the whole capital at the end of the term.
Who offers interest-only mortgages in France?
Mainly private banks, usually for loans above roughly €1 million and in exchange for investments placed with them and pledged as security.
Is an in fine loan more expensive than a repayment loan?
In total interest, yes, because the capital never falls. On €1 million over 15 years at 4.00%, interest comes to €600,000 against about €331,000 on a repayment loan.
Can I deduct in fine loan interest from French rental income?
If you let unfurnished and declare under the real regime, interest paid during the year is deductible. Check your full position with a tax adviser before choosing the loan.