Interest-only loans (prêt in fine) in France: cost, tax

The principle: interest first, capital at the end

The official model information sheet on borrower insurance distinguishes three types of loan (Consumer Code, annex to art. R313-8):

• amortissable (repayment): each instalment repays interest and part of the capital;
• in fine (interest-only): the capital is repaid at the end of the loan;
• relais (bridging): an interest-only loan used to finance a purchase while awaiting the sale of another property.

In every other respect, an interest-only loan remains an ordinary mortgage. The TAEG (annual percentage rate of charge) must appear in the offer and cannot exceed the taux de l’usure (legal maximum rate). The borrower has a 10-day reflection period before accepting the offer, which cannot be shortened, and the bank must keep its offer open for at least 30 days (service-public.gouv.fr). Banks also apply the debt-to-income limit of 35% of income and a term which, as a rule, should not exceed 25 years (service-public.gouv.fr); see the guide capacité d’emprunt (borrowing capacity).

Backing by an investment

Repaying all the capital in one go means having it. The bank therefore usually asks for security, and one of the most common is the pledge of a policy, for example a life insurance policy (abe-infoservice.fr). The borrower pays a sum into this investment at the outset, or builds it up over the term of the loan; at the end, the investment is used to repay the capital.

The arrangement rests on a bet: that the investment will earn, over the term, at least as much as the extra interest costs. This return is never guaranteed for unit-linked funds (unités de compte), whereas the capital is owed in full. The loan agreement specifies what happens if the investment is not enough at the end.

Total cost: the figures compared

Example (fictitious rate, excluding insurance and fees): €200,000 borrowed over 15 years at 3.50%.

Here the interest-only loan costs nearly €47,600 more in interest, because the capital never decreases. To compare the two, you need to add the payments into the investment to the cost of the interest-only loan and subtract what that investment will have earned. Current rates are set out in the guide taux immobiliers (mortgage rates).

Buy-to-let: interest and tax

For a main residence or a second home, loan interest gives no tax advantage: since 2011 for the main residence (service-public.gouv.fr). An interest-only loan therefore has a tax advantage only for a let property.

For unfurnished letting under the actual-expenses regime, loan interest and costs are deductible from rental income “without any limit as to amount or duration”, provided the loan finances the acquisition, upkeep, construction, repair or improvement of the property (2026 income tax brochure). Since the interest stays at its maximum throughout the term of an interest-only loan, the deductible expense stays high every year. Under the micro-foncier (simplified regime), by contrast, interest is covered by the flat-rate 30% allowance (service-public.gouv.fr): see the guide micro-foncier et régime réel (simplified and actual-expenses regimes).

Beware of the déficit foncier (rental loss): the part of the loss arising from loan interest is not set against overall income. It can be carried forward only against rental income of the following 10 years. Only the loss arising from other expenses is set against overall income, up to the annual limit of €10,700 (2026 income tax brochure).

IFI: a tapering deduction

Net property assets of more than €1,300,000 are subject to IFI (service-public.gouv.fr). To prevent interest-only debt artificially reducing the taxable base, the law provides for a tapering deduction: each year, the debt is deductible only up to the amount borrowed less that amount multiplied by the number of years elapsed, divided by the total term of the loan (CGI (General Tax Code), art. 974, II; BOI-PAT-IFI-20-40-20, § 20). The BOFiP gives the example of a €1m loan over 15 years: deductible for €933,333 in the 2nd year, then only €66,667 in the last.

Which professional to consult

A courtier en crédit (mortgage broker) can compare an interest-only offer with a repayment offer on the actual total cost, including the investment, and check whether the application stays within debt limits. The notaire (notary) handles the deed of sale and, where applicable, the deed of security that goes with the loan.