Salad Days: Understanding a bit about French Mortgages & Loans

Health is Wealth

There's a different thinking about debt here. The French don’t seem to think that you should die with any kind of debt. Or at least they will insure against it.

Leave it to the French to take the term “mortgage” quite literally. The term comes from Old French, when mortgage literally meant “dead pledge”, but this doesn’t actually have anything to do with the person living or dying, it more has to do with the fact that the deal dies when the debt is either paid off or when payment fails.

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I went out to dinner at a steakhouse with a couple of friends recently. It was six guys at the table and five of us ordered extremely rare stakes, French fries, and beer. Then one guy, Romain, ordered a fruity-looking non-alcoholic cocktail and one of their salads.

I wasn’t the only one to notice. Jean, one of the guys at the table, mentioned it to him.

Why the salad? We came for steaks, no?

Jean: Alors, pourquoi la salade? On est venus pour des steaks, non ?

Romain: Ah, c'est à cause de mon assurance pour le prêt immobilier. Ils ont dit que mon taux de cholestérol est trop élevé.

Romain said it was because he had failed his blood test for his mortgage and his cholesterol was too high, among other things. Romain has taken the test on January 8^th, after weeks and weeks of holiday eating and drinking. He’d had a lot of fois gras, among other things.

It was not healthy, the blood test clearly showed. His mortgage application was refused.

Jean didn’t think anything of it.

Jean: Et bien, bon appétit ! Espérons que ta salade soit aussi satisfaisante que mon steak saignant !

Okay – I hope your salad is as satisfying as our bloody steaks!

Romain: Merci, au moins je pourrai vivre assez longtemps pour payer cette maison.

Well, at least maybe I’ll live long enough to pay for this house.

The French future vs. the American past

I was the only one who had any questions.

Wait – what? Back up a second... You had to get a blood test for a mortgage? Is that normal?

Romain: Yeah, it's pretty standard here for bigger mortgages. They require a health checkup to qualify for life insurance, which is tied to the mortgage.

Me: Really? I thought getting a mortgage in the States was tough!

Everyone else was a little bit confused by my question at that point.

What did a blood test have to do with getting a loan?

Romain: Healthy body, healthy finances, I guess.

Jean: They don’t want you dying before you pay them back! It’s not good for anybody.

Romain stole one of my fries and then crunched his salad.

As Romain mentioned, it was explained to me that, above a certain amount of a mortgage in France these days, they will require that you have life insurance. It’s at about €210,000.

The French don't believe in leaving debts behind it seems. Overall, they do have fewer debts per capita here.

While mortgages are a part of debt that a household takes on, credit cards really aren't. I've had to pay fees to even maintain a French credit card, as opposed to the US where you get a free card but they nail you on all kinds of fees.

Other rules and exceptions

The 'AERAS' Convention, an agreement between the government, insurers, banks, and mutual associations, facilitates credit insurance access for 'at-risk' individuals, offering loans under specific conditions. For mortgages, the agreement stipulates that the loan must end before the borrower's 71st birthday and not exceed €320,000; for personal loans, the borrower must be under 50, with a loan period up to four years and a cap of €17,000.

So Romain has the salad because failing his blood test due made him ineligible for the life insurance requirement for his mortgage. Further, if you have any health issues, fewer banks will consider the loan and the terms will be less favorable. It’s kind of the opposite of the US, where they look at your past credit to determine the loan, not your future.

It isn't just about proving you can pay back the money. It's also about proving you're going to stick around long enough to do so.

So while the rest of us were dealing with post-holiday waistlines and avoiding our bank statements, Romain was navigating a whole other world, not for New Year's resolutions but for mortgage resolutions.

The policy's distribution between borrowers can vary based on their respective incomes, with the option for equal or unequal coverage between partners, as with husband and wife even. Life insurance is not incredibly expensive (about 1.4% or so) and becomes payable as soon as the bank accepts the mortgage offer, usually charged monthly from the borrower's account.

It's a sobering reminder – perhaps one we’ll have to consider over our next luxurious meal or contemplating our financial futures in this country.

At the same time, I was the only person at the table who found it unusual or remarkable.

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