Anyone who borrows money from a bank for a new car currently pays between six and twelve percent interest per year, depending on creditworthiness, term and other factors. This form of money lending is commonly called a loan or credit. If you borrow the money to buy a property, this loan is called a mortgage or annuity loan. This type of money lending is significantly cheaper because the bank secures its interest in the property by means of the land register entry. If something goes wrong, the property belongs (at least in part) to the bank.
Mortgage interest rates are currently comparatively favorable
It has rarely been as advantageous as it is today to take out a loan and buy a property. In the years 1972 to 1974, the interest rate rose to over ten percent, and in the 1980s it was even higher. On average, the interest rate over the past 50 years has been 6.4 percent. As a rule of thumb, if interest rates are above this mark, money is expensive, and you should agree on the shortest possible terms, for example.B. Over five years. If the interest rate is lower than this average value, you should agree on longer terms, e.g. a longer term.B. ten years. If there is even a three before the decimal point, one should lock as long as possible.
The higher the repayment, the sooner the loan is paid off
The annuity loan is the "standard" among the loan forms. It works like this: you take out a loan for an agreed term (usually 5, 10, 15 or 20 years, but you can also z.B. The customer should agree on a term of eight years) and pay it back with a constant monthly installment. One part of the installment is used for the interest, the other part for the repayment of the loan. Because repayment reduces the amount of interest, if you repay one percent, after one year you only have to pay interest on 99 percent of the original sum. Since a portion of the remaining debt is repaid with each installment, the interest portion is gradually reduced in favor of the repayment portion (see above chart).
The same high monthly charge makes an annuity loan easy to calculate for the agreed term of the loan. You pay the same amount every month. As a general rule, the higher the repayment percentage, the lower the residual debt at the end of the term and the less interest you have to pay. Example: Mr. X takes a loan of 100.000 euros at an interest rate of 3.5 percent and agreed on one percent repayment per year. He pays the same amount every month, namely 375 euros. After 44 years the loan would be paid off. Mr. X would then have a total of 200.000 euros repaid. Mr. Y agrees on a repayment rate of three percent. Although the monthly installment is now 545 euros, Mr. Y thus pays his last installment after only 23. He would then have a total of 150.000 euros repaid to the bank. If you cannot afford high repayment installments, you should at least agree on a special repayment right with the bank, z.B. the right (not the obligation) to reduce the debt each year by making special payments.
Higher interest rate means shorter term
A special feature of the annuity loan: The lower the interest rate for the same repayment, the longer it will take you to repay your loan. This is a bit incomprehensible at first, but it is a normal calculation example. Example: The loan amount is 100.000 euros, the repayment 2 percent. If you take out a loan with an interest rate of 8 percent, the monthly burden is 833 euros (100.000 euros x 8 percent = 8.000 euros interest and 2 percent repayment = 2.000 euros. Makes a total of 10.000 euros/year = approximately 833 euros per month). After 21 years you have paid the last installment. Then you have a total of 100.000 euro loan amount plus approx. 109.155 euros of interest paid. If you have an interest rate of 4 percent, the monthly burden is 500 euros (100.000 euros x 4 percent interest = 4.000 euros and 2 percent repayment = 2.000 euros = 6.000 Euro/year = ca. 500 euros per month). You pay a total of approx. 100.000 euros plus 68.070 euros interest back and are finished in about 28 years. However, it is not possible to quantify these example figures exactly; they still depend on the charging method of the financing institution (monthly, quarterly or half-yearly interest charging) and any other costs.
Interest rate: Pay attention to the digit after the decimal point as well
When obtaining offers, you should make some effort and compare carefully. At first glance, one percentage point more or less after the decimal point does not seem to be decisive – but this is deceptive. Since mortgage loans are by nature a long-term affair, some additional costs accumulate over the years. This is shown by our example: You finance 100.000 euros with 3.75 percent interest and 2 percent repayment. Your neighbor takes out the same sum at the same repayment rate, but with 3.5 percent interest. This is only 0.25 percentage points difference. For this you have in about 30 years but over 3.200 Euro more paid. The number after the decimal point can cost you real money. It pays to haggle. Even with your own bank. Obtain more favorable offers from competitors and take them to your bank advisor. There is always a little margin.
Calculate for the long term with a full repayment loan
In principle, a full repayment loan is an annuity loan that is repaid at a fixed interest rate over the entire term. Here, however, you specify the period in which you want to repay the loan in full. This results in the necessary repayment rate. Here there is no expiry of the fixed interest rate or. Fixed interest rate period, no renegotiation of follow-up financing and, of course, no interest rate risk. As the name suggests: full repayment loan.
In the case of a full repayment loan or constant loan, the fixed interest rate and the term of the loan should be tailored to your wishes and what is financially feasible. If the desired term of a loan is e.B. 15 years, so the monthly installment or. Repayment calculated so that the term of the loan is 15 years. With same loan height and same interest height, but a term of the loan of ten years then a clearly higher repayment would be necessary naturally. The effect: the shorter the agreed term, the higher the required repayment rate and thus the monthly rate. Conversely, however, the interest expense and thus the total cost of financing also decrease. The advantages are therefore obvious: the total cost of financing is lower, and you have interest rate security over the entire term.
But of course there are a few rules to follow. The borrower must keep the exact date by which the loan must be repaid in full. That is, there is neither the possibility of a shortening nor an extension. Repayment suspension as well as unscheduled repayments are also excluded. Therefore, the borrower must think carefully about whether he really holds out the contract to the end. As a rule, the term covers 10 to 20 years, i.e. a shorter period than with conventional annuity loans. The full repayment loan is therefore only recommended for financially strong borrowers who want a quick and clear debt relief, but who can also tolerate a higher monthly charge. Your necessary monthly income, however, you should already be quite sure.
Important: negotiate with the bank and the developer
Take a look at all the figures before signing a loan agreement. You should know these and also be able to assess how to proceed with changes in your life. Can you then still lift everything? Don’t just look at the effective interest rate. Particularly in the case of new buildings, commitment interest and partial disbursement surcharges are incurred for the period between the loan commitment and loan disbursement. Your bank may also charge fees for determining the real estate value of a condominium. Such costs can significantly increase the total amount to be paid. It is therefore worthwhile to look carefully and to negotiate persistently again and again.
SCHoNER WOHNEN tool for real estate: the price atlas
Anyone who takes out a loan is usually always interested in keeping the sum as low as possible. If you are unsure whether the purchase price for your desired property is actually justified, check it with our price atlas; simply enter street, house number and place of residence and you will see how much an apartment or house for sale costs in the corresponding residential area. The displayed price is the price per square meter. The small arrow at the bottom center of the search screen will take you to more detailed information, such as price trends over one or more years. There (or in the settings next to the address bar) you can also choose whether to display the value of an apartment or house for sale or rent. If you want to know more, click on "Request a detailed evaluation".