The interest on loans for building or buying a house remains at a historically low level. Five valuable tips show what customers should currently be aware of when it comes to home finance.
The dream of having your own four walls can be realized comparatively cheaper in times of low interest rates. The banking association has examined the development of effective interest rates for mortgage loans with ten years fixed rates. Accordingly, mortgage loans are currently available at effective interest rates well below two percent. Ten years ago, the average was 4.6 percent, five years ago around 2.7 percent.
Five tips to get mortgage lending
However, bank customers should follow some basic rules to avoid unnecessary costs. Because in individual cases – depending on the financial situation of the borrower, the equity employed or the chosen fixed interest period – the interest can vary significantly.
The banking association has recently given five tips on what to watch out for.
1. Secure the interest in the long term
Whoever builds should think long term. As a rule, you should choose a fixed interest rate of at least ten years. Given the historically low level of interest rates, you can also opt for a fixed rate of 15 or even 20 years. It is always important to compare offers from several banks and savings banks before making a decision. The indication of the effective annual interest rate makes it possible to compare different offers with the same term or the same fixed interest period.
2. Choose a high repayment rate
The higher the repayment rate, the faster a loan is repaid. While in the past one percent was usually the norm, repayment rates of three or more percent can now be agreed. The earlier a loan is repaid, the more interest you can save on mortgage lending.
The correct amount of the repayment rate is based on your personal income and other expenses.
3. Plan all additional costs
Remember that the real cost of a property is higher than the purchase price. You should always include ten to 15 percent of the purchase price for brokers, notaries, real estate transfer tax or government services (for example for the building authority) in the loan amount and put the necessary capital back for it.
4. Agree on a special repayment right
Special repayments enable you to repay installments that are higher than the agreed repayment rates early and out of sequence. This can be useful if, for example, an unexpected inheritance, due life insurance or a special payment is made by the employer. This possibility of wanting to repay part of the loan amount early usually has to be agreed in the loan agreement.
5. Use special termination rights
Construction loans can be canceled after a term of ten years. Borrowers can use this to secure a lower interest rate at another bank for the remaining term.
It is important, however, that you obtain relevant offers in good time before termination and compare them using the effective interest rate. Many borrowers do not worry about follow-up financing in time and give away so much money.