Why do I need home loan insurance

Real estate finance - frequently asked questions and answers

In determining your maximum loan rate The following principle applies: no more than you can carry over the long term! Important: How does a desire to have children affect income and expenses, and for what period of time? How secure are your current job and your income from it? How long would your reserves last to bridge temporary or partial loss of income?

Also, think about when you want to be debt free. It is certainly common knowledge that debt-free property also costs money. However, if you want to be certain whether the funds will still be sufficient for your own home in retirement age, you have to calculate when the loan will probably be repaid, what costs could then be incurred and in what order of magnitude reserves will be available.

Rule of thumb: To maintain the value of the property, you can calculate around 2 percent of the value of the building fabric every year. The building fabric is the property price minus the property value attributable to it.

Of course, you don't need the money in the first few years of a new building, larger sums are often only necessary after 20 years. Since debt-free property can still cost a lot of money, it often makes sense to be debt-free many years before you retire.

The more equity, the lower the risks

Anyone who uses little or no equity capital pays higher interest rates, tends to take longer to discharge their debt and carries the risk that the bottom line will be debts if they are sold prematurely. If the 20 percent of the total costs, which are often demanded by banks, are paid from their own resources, the proceeds from the sale will in most cases be sufficient to pay off the debt in full.

To the Equity Incidentally, they all belong tooSavings contracts for old-age provision such as annuity and capital life insurance and other financial investments. Those who do not use them as equity capital have to take out more credit and take longer to repay them. It often makes sense to terminate the savings contracts, use the credit to reduce the loan and use the savings rate for repayment.

However, bank advisors, credit intermediaries and financial advisors do not always advise in this way. On the one hand, the higher the loan amount, the greater the interest profit of the bank, and on the other hand, commissions often flow to the broker from the existing investment contracts. But keep a financial margin so that you can always keep a sufficiently large reserve for unforeseen expenses.

Full total cost of the property purchase

The Ancillary acquisition costs how Real estate transfer tax, land registry and notary fees as well as brokerage feescan already make up 10 percent of the purchase price. Calculate all the necessary costs, including smaller furniture, lights or expenses for the new garden or balcony. Even if the family organizes the move themselves, there are often still some expenses.

In the case of new buildings, additional expenses may be incurred if, for example, the subsurface has surprises in store or if special requests - from the number of sockets to the type of parquet to be laid - are to be met for an extra charge instead of the standard services in the building description. Calculate carefully here and include a buffer.

Refinancing can be expensive or even refused. If the loan is too high, the excess amount can best be used directly for a special repayment.

Which form of financing is suitable?

If you know the possible loan installment that you can sustainably and at the same time have determined when you want to be debt-free at the latest, you can calculate the maximum loan amount at a given interest rate.

Example: If the loan is to be repaid after 15 years at a monthly rate of 700 euros and an interest rate of 2.5 percent, it must not be higher than 104,981 euros. You can find helpful calculators for this on the Internet.

A simple annuity loan like the one shown here is usually the best form of financing. The length of the fixed interest rate depends on how quickly the loan is repaid and whether you are willing to pay the associated price in the form of higher interest for longer interest security.

You should also agree on annual special repayment rights. You can now get this free of charge almost everywhere at an annual rate of 5 - 10 percent of the loan amount, if you ask for it.

It is also practical if you have the right to change the repayment rate. Depending on your financial situation, you can then repay between one or 10 percent of the loan amount every month.

Not all banks offer this additional flexibility, and one can do without it if instead high annual special repayment rights are granted. We advise against combinations of home loan and savings contracts, life insurances or investment funds with loans in almost all cases. Often these variants are more expensive or too inflexible, sometimes even very risky.

You should approach the advice of banks, building societies and other sellers with healthy skepticism. Anyone who has taken the given tips to heart should at least have avoided the worst mistakes of inadequate advice. Stay away from financing that you cannot see clearly through. If you are unsure, you can contact your local consumer advice center for advice.

Does a forward loan make sense?

A forward loan is a loan contract in which the conditions for a loan are already agreed today, which will only be paid out in the future. You can use it to extend a loan today whose fixed interest rate will end in three years.

The interest rate corresponds to the current interest rate plus a surcharge of currently around 0.2 percentage points per year of the remaining term of the current loan. Nobody can say with certainty whether it is worth fixing the interest rate today. If the interest rate increases until the fixed interest rate of the current contract expires, the borrower is happy about the agreed low interest rate. If interest rates do not rise or even fall, the borrower still has to take the forward loan as agreed. If you want to avoid interest rate risks, a forward loan can be a good alternative.

When can I reschedule the loan?

This is not possible before the fixed interest rate has expired. The only exception: the fixed interest rate is longer than 10 years. Then you can terminate after 10 years with a notice period of 6 months. Without the right to terminate, there is no entitlement to rescheduling. If the bank nevertheless voluntarily releases you from the loan agreement, it is usually only in return for a prepayment penalty or a cancellation fee which is so high that the rescheduling is very likely no longer beneficial.

How long will the phase of low interest rates last?

Nobody can reliably predict this, even so-called bank experts are regularly wrong here. Not even the European Central Bank (ECB) itself is aware of its decisions for next year today. We therefore advise you to ignore interest rate forecasts. The decision for your own property should depend on other criteria, not on the interest rate forecast.

How long should I get the low interest rate for?

There is no universal answer to this question. Firstly, nobody knows how interest rates will develop. In Japan, for example, the key interest rate has been below one percent for years. Perhaps interest rates in Germany will be lower in five years than they are today, but the opposite is also possible.

Second, the fixed interest rate depends primarily on your need for calculation security and the repayment process. Those who repay quickly do not usually need an excessively long fixed interest rate. The reason: The rate can then remain unchanged despite the rise in interest rates, only the total term of the loan is then extended.

On the other hand, those who cannot afford an interest rate hike or who want to protect themselves from it should choose long-term fixed interest rates. The question of fixed interest rates depends on your wishes and your need for security, not on the current interest rate level. By the way, as a consumer, you can terminate any loan agreement after 10 years by giving notice, the bank cannot.

What is to be made of an immediate home loan and savings loan?

Instant home savings finance is an alternative to financing a home. It is a combination of a loan agreement and a building society loan agreement.

The loan will usually be not repaid'You only pay the interest here. This means that the remaining debt remains in full. A larger one-off payment and then the regular monthly savings payments are usually included in the home loan and savings contract. The savings balance earns little interest and, if you include the acquisition fee, the interest rate is often negative until the building society contract is granted.

So you pay interest on the one hand and home savings installments on the other until the building society contract is granted. A home loan and savings contract is granted at the earliest when you have paid in the required credit (depending on the tariff, usually 40 percent of the home loan and savings amount) and when the contract has been in place for long enough (this also depends on the tariff). With the allocation you can apply for the building society loan. This building society loan is then intended to replace the repayment-free loan. The conditions of the building society loan are already fixed. The selling point for this type of financing is therefore that the consumer can count on secure (non-increasing) interest rates over a long period of time.

In order to determine whether an immediate home loan savings loan is worthwhile, it is necessary to have the Total effective interest rate to know over the entire term. We know from our consulting practice that the total effective interest rate is usually above the interest rate for the loan and above the interest rate for the building society loan and not in between, as one might suspect. The reason for this lies in the negative interest differential business up to the point in time of the allocation: the interest costs for the loan are higher than the interest income from the building society savings balance.

Building societies like to emphasize that special repayments are possible at any time for building society loans, which is a particular advantage of building society combination financing over normal annuity loans. As a rule, the right to special repayments does not relate to the repayment-free loan, but to the later and cheaper building society loan. Is this really an advantage of building society financing? We say very clearly: no.

Because In this case, special repayments increase the total effective interest rate the financing. At first glance, this seems astonishing. The reason for this: The particularly low-interest second phase of the financing (low-cost building society loan) is shortened. This gives the more expensive first phase (repayment-free loan and negative interest differential business) greater weight with the consequence that the total effective interest rate increases. So anyone who expects to be able to bring special repayments into the financing must know that the total effective interest is then mathematically a little higher than without these special repayments.

The alternative to building society combination financing is a normal annuity loan with a similar fixed interest rate.