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Real Estate Loan: Important Aspects of Your Home Financing

Real Estate Loan: Important Aspects of Your Home Financing

Anyone who has found their dream property usually finances the dream property with a real estate loan. When it comes to financing, key factors in real estate loans have a decisive influence on the loan process. In addition to the conditions and the equity investment, the amount of the repayment rate and the term play an important role. Here you will find an overview of the most important aspects of mortgage lending.

Conditions - individual offers for each borrower

When making a comparison, the borrower primarily pays attention to the interest rate in a real estate loan. But the offers of the banks are individual, because various factors cause a surcharge or a discount on the applicable interest rate.

The bank's conditions for a real estate loan depend not only on the current capital market interest rate, but also on the personal situation of the borrower and the value of the property. A number of criteria have an impact on the building rent.

Criteria that are often taken into account when comparing real estate loans:

  • the professional position of the borrower (employed or self-employed)
  • the creditworthiness of the borrower (Schufa information, income, type of employment
  • the use of the property.

Banks calculate the conditions for a real estate loan individually, various factors can influence the mortgage lending. While certain professional groups save a few euros with some credit institutions, other financiers charge surcharges for special real estate or loans to special borrowers. Ideally, get in touch and request a personal offer for an individual comparison.

No solid financing without equity

The more equity the borrower uses in a real estate loan, the cheaper the interest rate on his loan is often. The banks usually reward the lower risk involved in lending with particularly attractive interest rates.

A rule of thumb is that at least around 20 percent of the total costs for the construction project or the purchase price for the property should come from equity.

Factors that make up the total cost:

  • the purchase price or the construction costs for the property
  • the notary fees (around 1 to 1.5 percent)
  • the fees for the land registry (about 0.5 percent)
  • the broker's commission (between 3 and 6 percent of the purchase price plus sales tax)
  • Ancillary financing costs (commitment interest or costs for an appraisal)

There is also the real estate transfer tax, the amount of which depends on the respective federal state. The rate is between 3.5 and 6.5 percent of the purchase price. With a real estate loan, the buyer should ideally cover at least the ancillary costs from his equity.

Repayments - How To Pay Back Your Loan

Most borrowers opt for an annuity repayment on a real estate loan. The monthly installment is made up of the interest rate and the repayment installment, with each payment the repayment portion contained reduces the remaining debt. Since interest is only calculated on the amount owed on a loan, the interest payments decrease over time. The repayment portion increases to the same extent, as the rate remains unchanged.

Alternatively, you can opt for a bullet repayment. Then you only pay interest to the bank during the agreed term and repay the debt in one sum at the end of the fixed interest period. This only makes sense with a real estate loan if you expect a sum from life insurance, a savings contract or another investment at a certain point in time. Our repayment calculator gives you an initial overview.

Choosing the right repayment rate

In the case of repayment via annuities, the term depends on the repayment rate and the amount of the interest rate. With an annuity of around 6 percent, it will take around 20 to 30 years, depending on the interest rate, to repay your loan to the bank. The interest rate level remains very low in 2015 as well. If you opt for a one-percent repayment, you can expect a low monthly burden, but you should take into account that the repayment of the loan will then take significantly more time. Ideally, you should compare different alternatives.

This table shows the terms for different repayment rates:

Specification of the terms in years

Tip: In addition to an offer, get an interest and repayment plan that shows the loan history. In this way, you can optimally adjust the repayment amount to your further life planning.

Remember that after the first fixed interest period, the loan has not yet been repaid and follow-up financing is pending. If the conditions on the capital market are very high at this point in time, you must expect rising costs.

Five, ten or 30 years? The choice of the fixed interest rate

With mortgage lending, the fixed interest rate is usually between five and 15 years, some banks offer the option of fixing the interest rate on a real estate loan for 30 years. For you this means absolute planning security, because within this time the interest rate of the loans can no longer change. If you have decided on an offer with a shorter fixed interest rate, follow-up financing is due after the term has expired.

If the conditions are as favorable as in 2015, a long fixed interest rate is often an option for borrowers in need of security. In this way, you can secure attractive interest rates for a long time from 2015 onwards. This is particularly useful if you are planning a long repayment phase. It is particularly optimal if you choose repayment and fixed interest rate in such a way that the loan is paid off at the end. In this way, you have completely eliminated the risk of rising interest rates for follow-up financing. Get an initial overview in the interest calculator.

Special repayments during the term

The long fixed interest rate offers many advantages with a real estate loan. In the event of early termination during the term, however, banks often charge a prepayment penalty. In doing so, they charge the customer for the damage caused by the unplanned repayment of the loan. If you want to exclude this, you can agree on special repayments when concluding the loan agreement. This part of the contract is partly possible against the payment of a small interest surcharge, but often also free of charge. For example, you can make a certain portion of the loan amount annually as a special repayment.

In addition, as a borrower, you have a special statutory right of termination after ten years. According to Section 489 of the German Civil Code (BGB), you have the option of canceling your loan after ten years with six months' notice. If the capital market interest rates are significantly lower after this time than when you concluded your financing, a termination with subsequent rescheduling can make sense and you can save a few euros in the future.

Stand-by interest - if you don't call for the loan straight away

If you buy a house or a condominium, the purchase price is usually due shortly after the loan agreement is signed and the loan is paid out in one lump sum. If you buy the house from a property developer or build it yourself, the bank pays out in installments based on the progress of construction. In these cases, commitment interest may apply during the disbursement phase.

Basically, the banks offer a certain period in which you do not pay interest on the amount that has not yet been called. The deadlines are very different and are between two and twelve months. As a rule, you have to reckon with monthly costs of 0.25 percent on the unused amount. You should not neglect these financing costs, especially with a new building. If there are delays, the commitment interest can significantly increase the ancillary costs. Compare the offers and check this point carefully!

Different forms of financing for different needs

As a property buyer, you have different options for financing your dream property. You can combine a classic real estate loan with a KfW loan or, in the case of an annuity loan, achieve quick debt relief by agreeing on special repayments. Those who want to be particularly flexible opt for a short fixed interest rate or finance with a real estate loan with a variable interest rate if they hope for falling interest rates.

Some alternatives for financing a real estate loan at a glance:

  • Annuity loan with tied borrowing interest
  • KfW loans with public funding
  • Variable rate loans

It is important to tailor mortgage lending to your life plans and your financial situation. You can combine different mortgage loans according to your needs. Get in touch with us and let us advise you on the subject of real estate loans without obligation.

Tip: Every real estate loan should fit the specific project and the people behind it as precisely as possible. Our experts are familiar with all aspects of mortgage lending and can advise you individually. Therefore, it is best to make an appointment for a personal meeting with your Interhyp expert on site.