Lots of people have savings to invest in property and prefer to purchase a property in cash to avoid a monthly payment. While on the surface that seems like a great idea, there are a number of reasons to take a mortgage aside from the obvious necessity for additional funds:
1. You may have other needs for your money! Perhaps you want to renovate to improve the property which will improve your return on investment.
2. Interest rates in France are lower than both U.S. and U.K. rates. At today's low interest rates, there are other investments which can yield higher dividends and therefore earn more money than the mortgage is costing you.
3. Investing as small amount of capital as possible is a way of leveraging a large mortgage that will be covered by the rental return of the property. As the years go by, your rental returns are likely to increase while your mortgage repayment remains the same, generating a higher return.
4. Any increase in the value of the property also increases the equity you've built. With a good track record, the lender may be willing to offer a second mortgage or equity release, facilitating additional property purchases.
5. A mortgage is a great way to reduce the tax liability on your French property by lowering its net value. With inheritance tax rates as high as one-third (to non E.U. residents) and wealth tax on assets in France over 1,300,000 euros, this can save an enormous amount of tax liability.
6. Interest paid on a mortgage in France is deductible on your U.S. tax return.
The biggest reason you will want to take a mortgage is...
7. The ability to more or less control the risk related to the fluctuating rate of exchange. If you take a variable rate mortgage, one which allows repayment with no penalty, you can use the rates to your advantage by making payments when the exchange rate is in your favor. The down payment, the taxes and Notaire fees paid at closing are the only amounts subject to the current rate of exchange. And even that, with good planning and a currency specialist, can further protect you from the risk. "Forward" contracts allow you to buy Euros up to two years in advance to protect yourself against these currency fluctuations.