Practiced by the majority of banking establishments, tiered lending remains a type of arrangement that is little appreciated by customers. However, it has undeniable advantages, even if these necessarily have a cost. Well done and well worn by a real estate broker, it must be carefully studied, depending on your situation, so that you can calmly choose to adopt or refuse it.
What is the “landing loan”?
Also called “pull-out loan” or “nested loan”, the “tiered loan” allows borrowers to maintain an acceptable debt ratio throughout their repayment, by arranging a constant monthly payment on different lines of credit (interest rate loan zero, housing savings loan, conventional loan, etc.).
Concretely, if your project involves different credit formulas, with specific durations, you may have to repay, every month, all the associated amounts until the end of each solution, implying a reduction in monthly payments as that the lines of credit stop.
With the smoothed loan, you benefit from an identical maturity throughout the loan, intended to compensate for these variations.
What are the advantages and disadvantages of this operation?
The use of a tiered loan offers borrowers the possibility of having a unique and weaker maturity than any other financing solution. A generally appreciated proposal, especially at the start of credit, coupled with a real simplification of budget management. Besides that with a lower debt ratio, the borrower can (possibly) take out other loans.
Note that the cost of borrower insurance, traditionally built on the total amount of the loan and its total duration, will also be lower under a smoothed loan. Reduced, in the same way as the monthly payments, by the weighting carried out between the shortest and the longest loan.
Naturally, these numerous advantages come at a price: the total interest cost of a tiered loan is higher than with the various unsmoothed loans. It is therefore strongly recommended to determine this total cost before and after the smoothing operation, to make an informed decision.
How is a smoothed loan?
Beyond this mechanical overcost, you have to know the realities on the ground: with a tiered loan, some banks can increase their rates and offer a higher cost of guarantees. In addition, in the presence of smoothing, the modulation of maturities and early repayment may be more difficult to obtain.
Not to mention that the premiums paid within the framework of an insurance delegation cannot be smoothed, because they could harm the optimization of the whole.
Generally, a bank is not required to automatically accept smoothing. It is moreover common that she refuses those made on consumer loans and on car loans.