A good financing planning saves thousands of USD
The test of the Filtas Beyrs in March 2019 revealed the 70,000 USD difference in interest on a loan of 450,000 USD and a fixed interest rate of 15 years. The interest cost of the most expensive bank was twice that of the cheapest provider. But mortgage lending is not just about interest rates. Thorough planning in advance also helps to reduce costs. We will show you what you have to be aware of.
How to proceed with the construction financing?
In order to optimally plan the mortgage and save money, a few things should be considered. The infographic shows which steps should be taken. After that, we will explain the individual steps in more detail so that you can proceed correctly when planning your mortgage lending.
Set loan amount
First of all, the exact loan amount should be defined. Obtaining an existing property of course this is easier than on a new building. Nonetheless, re-financing is often difficult and too much credit leads to discussions with the bank about free cancellation.
The lower the amount of credit required, the lower the interest must be paid by the acquirer in two ways.
The monthly interest burden is calculated not only from the amount of the loan, but also from the mortgage lending of the loan. The lower the rate of loan and mortgage lending value, the cheaper the interest rate. The funding institutes generally differentiate between five levels:
- Up to 40 percent
- Up to 60 percent
- Up to 80 percent
- Up to 100 percent
- In exceptional cases over 100 percent
What many acquirers do not know: There are ways to artificially increase equity. Loans from relatives are a possibility. But employer loans are also included in equity. However, the loan agreement should be set up by a tax consultant, so that the loan is not tax deductible as a special wage payment.
When calculating the equity and the loan amount, the incidental acquisition costs must not be forgotten. Depending on the state, these can amount to up to 15 percent of the purchase price. To include the acquisition costs
- Real estate transfer tax
- Notary and court costs
Assuming that the purchase price for an existing property amounts to $ 400,000, the ancillary purchase costs $ 48,000 and own funds amounting to $ 100,000. The loan amount in this case 348,000, which corresponds to a loan-to-value ratio of 87 percent. Since interest rates are quite high in this area, the involvement of relatives and employer loans would be advisable.
Compare interest rates correctly
Of course, the focus of real estate buyers is on the interest rates. However, the so-called “bound debit interest” is not very meaningful. The legislator does not demand in vain on the basis of the price information ordinance the disclosure of the annual percentage rate of charge.
This interest rate takes into account all direct and indirect costs associated with the loan. These include, for example, a loan brokerage fee or, as indirect costs, the modalities of the repayment settlement. If this takes place only once at the end of the year, the borrower pays interest on the loan balance of January from January to December, despite current repayment. The loan becomes cheaper if the repayment is settled semi-annually.
Secure low interest rates in the long term
Fixed interest rates with a duration of five years are cheaper than a fixed interest rate for 25 years – that is indisputable. However, in periods of low interest rates, purchasers should minimize the risk of interest rate hikes, especially in the early years of financing. Especially in the first years, the repayment share within the rate is very low. Consequently, with a short fixed interest rate and a rise in interest rates, the rate of the new fixed interest period may be higher than at the first fixing period. With tightly calculated financing, follow-up financing is no longer sustainable in the worst case scenario.
The recommendation for financing in a low-interest-rate phase is very clearly that it should be agreed as long as possible with the maximum possible repayment installment.
The only two ways to completely eliminate the interest rate risk are Volltilgerdarlehen and Construction loan financing. However, Hailygen have the disadvantage that even with a maturity of 25 years incurred quite high monthly burdens. Construction loan financing, on the other hand, involves the imponderability of the final allocation of the home savings loan.
Determine credit rate
Equity, purchase price and interest ultimately determine how much property can be financed in the end. With the help of a credit comparison calculator, it is possible to play a little bit over the duration of the fixed interest if the acquisition of the dream property could become scarce. It is important not to lose sight of the interest rate risk over a short period of time. The amount of the initial repayment rate can also be adjusted to last fit the monthly rate. Eradication also plays a key role over the entire loan term.
Arrange for flexible repayment
Mortgage lending can accompany the acquirer a large part of his life. Terms of 30 years are not uncommon. No one can predict for such a period how the personal economic situation will develop. Special payments, salary increases or inheritances can, if the loan agreement has been properly negotiated, make financing much easier.
Most lenders now allow borrowers to redeem a fixed percentage of the residual debt once a year without any prepayment penalty. For example, salary special payments come into play here.
Even more attractive, however, are the loan agreements, which allow the repayment rate to be adjusted as needed even during the term of the loan. With a salary increase, an increase in the eradication would make sense, with short-time working, a reduction.
Special repayments lead to a reduction of the remaining debt and, with the repayment rate remaining constant, to a faster repayment of the loan and thus inevitably to a considerable interest savings.
Against the background of the special repayment, however, state subsidies, should not be used to raise a loan that is actually too high in the hope that everything will “somehow fit”. It makes more sense to use a loan that can be financed even without these subsidies and to make special repayments in the first ten years with the state funds.
A flexible repayment has another advantage. If the property is or must be sold during the fixed interest period, the prepayment penalty will be much lower than if the asset is repaid. The reason is that the bank has to include in the calculation the hypothetical still affordable special repayments, the repayment debt to be replaced thus decreases in theory.
Although every mortgage lender claims to offer the ultimate terms, a loan prospect does not miss out on a funding comparison. At the end of the day, the requirements for perfectly fitting home financing are too different. A mortgage lending comparison with numerous filter functions provides the necessary work in advance to find the optimal loan and to save costs.
In addition to the credit intermediaries, which actually make full use of more than 200 partner institutions, acquirers should also seek the services of regional providers. These are often not represented in the pools of intermediaries.
Finally, negotiations may still be necessary on one or the other trifle in order to get the contract with the desired partner “around”.
Maybe that would be interesting for you too:
Annuity Loan – how it works, interest rates and comparisons
In the case of an annuity loan, the borrower pays the same rate over the entire term – consisting of interest and principal.
Mortgage Loans – Interest, Comparison and Operation
Mortgage loans are the standard variant of mortgage lending. Which interest rates are currently the cheapest in comparison.
Mortgage lending without equity – calculator and comparison
Mortgage lending without equity is a full financing. Our guide shows advantages and disadvantages and compares offers.
Remaining debt insurance – comparison of additional costs for consumers
How much is residual debt insurance really expensive? We compared the offers from ten banks and show you the real costs.