All you need to know about home loans in Luxembourg

You know where you want to live and what type of property you are looking for in Luxembourg? You are now ready to know the exact amount you are able to borrow.

1. How does a home loan work in Luxembourg?

Here is a simple definition: a real estate loan is a loan granted by a bank to finance the purchase of a property (apartment, house, land). This loan is contracted over a predetermined period of time (15, 20, 25 years or more) at a rate that can be fixed or variable.

• The interest rate determines the commission you pay each month to the bank in return for the loan: the higher it is, the more you will pay for your loan. These rates can go from 0,7% (very solvent profiles on short term loans) to 1,65% (for more risky profiles on long term mortgage). In short, the less creditworthy you are, the more your loan will cost you compared to other profiles.
• You must generally pay a contribution: to finance your project, the bank will ask you to invest your savings. This contribution generally is 10% of the total amount of the loan if you buy your main residence. It rises up to 20% if you buy to invest (thus to rent the property). On the other hand, if you are buying for the first time, you may not have to pay a contribution. We recommend you to consult your bank or an atHomeFinance broker to know your rights.
• You should also pay for an insurance for your loan, which protects you in the event of the premature death of one of the borrowers (if one of you can no longer repay the loan). It is possible to add options to extend these guarantees and cover the risks of disability or accidents. This insurance is not mandatory but more and more banks ask for it.

Now, here are the specifics of a home loan in Luxembourg:

• The duration of the loan can be up to 30, 35... even 40 years in some cases! This duration is higher than in the rest of Europe, because of the high prices of real estate here. As a comparison, in France, the maximum duration is 30 years;
• Fixed rates are generally around 1.3% (between 0.7% and 1.65% depending on the amount, duration and profile of the borrowers). But a lot of Luxembourgish people now opt for a variable rate;
• The insurance can cost several hundreds of euros per month. The insurance fees correspond to a percentage of the amount of your loan. Due to the high prices of real estate in Luxembourg, the contributions will be higher than in other countries.

If you are on a fixed-term contract, a temporary job or a trial period: be careful! Your situation could complicate things as not all banks accept such profiles. The best way is to talk to an atHomeFinance expert to find out more about your options.

2. How much can you really borrow to purchase a property?

Even if you have already started your real estate visits to take the pulse of the market, we advise you to know the exact amount you could borrow before signing a sale agreement. This will avoid disappointments and setbacks. In Luxembourg "a preliminary sales agreement is equivalent to a sale (according to the formula of the Civil Code). Once the agreement is signed, you cannot change your mind without paying heavy penalties.

Therefore, prepare your project well and be sure you are able to finance it before signing anything.

Here's how to determine the true costs of your acquisition:

• The price of the property: this is the easiest to determine, since it is in the ad! But you can also negotiate it;
• The notary and government registration fees, which you will have to pay when you sign the deed of sale. These fees correspond respectively to 1% and 7% of the price of the property. They vary according to the characteristics of the property: old or new;
• The renovation work, if necessary, which must be budgeted before making your loan;
• The necessary contribution according to your profile: 0% to 10% if you buy for the 1st time, 10% if you buy for the 2nd time (or more), 20% if you invest and wish to rent.

3. Fees related to mortgage in Luxembourg

• A mortgage on the property you acquire is always required by the bank. It is a guarantee for the bank in case of inability to repay the loan. The notary is responsible for registering it at the Luxembourgish "Bureau des Hypothèques". These additional fees will be asked by the bank;
• It is also preferable to opt for an insurance policy. The insurance will take over the loan, especially in the case of a couple, so that the co-borrower does not have to pay the entire loan. This will represent additional monthly fees.

Note that the bank's file fees, the mortgage fees and the outstanding balance insurance are deductible from your tax return. Read more here.

The best way to know your final envelope to be financed is to make a free simulation with an atHomeFinance expert: you can ask for it by filling the form at this link.