Breaking your PEL for a real estate purchase, a false good idea?
Very often, you will need to use money from an old home savings plan to buy your primary residence, but if you don’t need it, it may be wiser to keep your PEL! Here’s why.
Using your home savings plan to purchase your…home seems to make sense.
How to save 100,000 euros in ten years?
If your PEL contains 20,000, 30,000 or 60,000 euros, you probably need this money to buy the house or apartment of your dreams.
When to keep your PEL?
What if I don’t? What if your PEL is only a few thousand euros or if you can finance your purchase entirely by borrowing?
In either case, withdrawing the money from it is probably not a good idea. Why?
The first reason is that the PEL has seen its usefulness partly diverted by the collapse of interest rates. Traditionally, the home savings plan made it possible to accumulate lending rights in order to benefit in the future from a loan with an attractive interest rate.
This use of the PEL is now totally obsolete.A home savings plan will allow you to borrow at best at…2.20%, a figure well above market rates (1.25% on average in the second quarter of 2020 according to the Crédit Logement/CSA observatory).
A good investment without risk
On the other hand, the PEL has become an attractive savings product: risk-free and liquid (even if any withdrawals lead to the plan being closed), it offers a higher return than the Livret A: 0.70-0.83% net of tax, or even more than 2% for older generations, compared with 0.5% for the preferred passbook savings account of the French.
These “old” PELs should be kept if you can, even if you are buying property.
Those opened between August 2003 and January 2015, for example, offer a gross return of 2.5% (2.07% after social security contributions and 1.75% after flat tax if the plan is more than 12 years old).
Better to borrow
Under these conditions it may therefore be more judicious to borrow an additional 20,000 euros at 1.2% than to use the 20,000 euros in your PEL with an interest rate of 2.07% per year.
You need to compare the remaining life of your PEL with the estimated time it will take you to repay your loan.
A home savings plan opened in 2014 will earn interest until 2029 but from 2026 it will be taxed (at 30% or less depending on your marginal tax rate) because the plan will be over twelve years old.
More than 1,000 euros in earnings
In both cases, we assume that you hold 20,000 euros in a PEL opened in 2014, which will therefore earn 2.07% per year net of tax for another six years and 1.75% for another three years. The money is then placed in a risk-free passbook savings account with an interest rate of 0.5% per year.