Home loan is just one of many names for mortgage lending. Construction loan, home loan, all means the same thing: taking a loan to buy or build a property.
Many Germans unites the goal of their own home. But not infrequently, the dream fails of its own four walls, because the financial aspects were not sufficiently considered.
The home loan and its idiosyncrasies
One of the main tasks of banks is the realization of loans. Especially through home loans, or mortgages in general, the banks earn good money. A home loan differs in some key factors from the conventional installment loan, which is given without earmarking. First and foremost, it is a loan with a real collateral. This is the registration of a land charge in favor of the financing bank. Mortgages, colloquially still used for it, have practically lost importance and make up only five percent of the collateral.
There are different variants how a home loan is structured:
- Annuity Loans: Every month, the landlord pays a steady rate. This consists of the interest and the amortization. Over time, however, the composition of the rate shifts.
- The repayment share increases and the interest rate decreases.
- Repayment Loan: The loan amount is divided by the number of repayment installments desired. The interest rate is added to the installment amount. The later installments fall during the repayment period, as a continuous repayment takes place. More information in the amortization calculator
- Term loan: During the term of the loan , only the interest will be paid. At the same time, the borrower will, for example, have a fund savings plan or a home savings contract. With the last interest payment, the savings contract is due and the loan repaid in one sum.
- Foreign currency financing : A loan in another currency can make a home loan cheaper or more expensive depending on the price.
Important about the home loan
In the case of home loans, the interest rate is ultimately decisive for the costs incurred. The lower the interest, the cheaper the mortgage lending. However, when selecting the appropriate home loan, attention must not only be paid to interest. Other factors must also be in focus.
The interest rate is influenced by the so-called mortgage lending and the duration of the fixed interest rate. The lending expiration is the ratio between the mortgage lending value and the loan amount. The greater the equity ratio, the lower the mortgage lending rate and hence the underlying interest rate. For a home loan, four stages of mortgage lending are applied.
How do interest rates affect home loans?
|product providers||Maximum Lending Termination|
|life insurers||A maximum of 50% of the mortgage lending value|
|mortgage lenders||Maximum 60 percent of the mortgage lending value|
|Banks, Sparkassen & Bausparkassen||Up to 80 percent of the mortgage lending value|
|Banks and savings banks||Up to 100 percent of the mortgage lending value|
As before, for sound mortgage lending, the buyer or client should be able to pay at least 20 percent of the purchase price plus incidental acquisition costs from own funds. The amount of ancillary labor costs varies from one federal state to another. Reason is the different percentages of the real estate transfer tax and the maximum brokerage commission. The following additional costs apply:
- Real estate transfer tax
- notary fees
- court costs
Due to the usually very high credit sums, just a few percentage points have a strong impact on the total costs. If you want to drive at low interest rates, should refrain from a mortgage at home loan.
How do interest rates affect home loans?
|loan amount||interest||running time||Cost by interest|
|200,000 USD||2.25 percent||ten years||23,282 USD|
|200,000 USD||2.50 percent||ten years||25,940 USD|
|200,000 USD||3.25 percent||ten years||33,996 USD|
As can be seen from the calculation example, only small differences in the interest rate have an extreme effect on the overall costs. Another factor that needs to be considered is interest rate fixation. For loan sums in the 6-digit range, as it regularly occurs in house financing, the sum is usually not paid after 10 years. After expiration of the repayment term, the borrower must therefore take care of the most favorable follow-up financing possible.
“Especially at times of low interest rates, it makes sense to secure this favorable interest rate level for the future as well. The instrument for this is called forward loans. Up to 60 months in advance, the follow-up financing can already be guaranteed under today’s conditions. The follow-up financing does not necessarily have to run via the current bank. Forward loans are especially worthwhile when interest rates start to move. For the interest rate hedge, however, the banks calculate an interest premium, which is based on the length of the lead time of the forward loan. “
If the bank changes, the costs of deleting the existing mortgage and of lodging a new mortgage on another bank will no longer apply. The institutes accept declarations of notarization certified by one another, which cost only a fraction of the amount.
Even if interest rate maintenance has not yet expired, the borrower has by law the option to terminate the home loan. The condition is that the interest rate commitment is more than ten years. The notice of termination must be made no later than six months before the end of the tenth term. Depending on the current interest rate, rescheduling can make sense and save money in subsequent years.
Plan home loan in the loan calculator
The Internet now offers good opportunities to realize the home financing as low as possible. Long gone are the days when the bank adviser was the first and only point of contact.
A loan calculator enables a transparent comparison of all home loans and also the subsequent follow-up financing. As already shown, small differences in interest rates can save a lot of money. From the comparison, the loans can also be applied for directly. Direct contact in a bank branch is no longer necessary.
How is the loan amount in the home loan together
An error that can occur with inexperienced builders, is the wrong planning of the loan amount. It is necessary to cover all costs that arise around the construction of a house or the purchase of a house. Because the additional costs add up to a stately sum. Do not forget the following factors when planning:
- Costs for the notary
- Costs incurred by appraisers.
- Costs for architects
- Other utilities, such as a new kitchen or new furniture
- For new buildings, the cost of the outdoor facilities
What else must be taken into account when paying the home loan?
A home loan runs in comparison to many other installment loans over many years. As a rule, a mortgage lasts 25 years or more. During this time, a lot can change in your own financial situation. A salary increase or a heir can play unplanned money in the house. This money can, if special repayments are provided in the credit agreement, shorten the term.
Against this background, it makes sense to choose financing that provides free special repayments from the start. These usually amount to ten percent of the remaining debt. However, if the bank calculates a prepayment penalty, it expires at least in the four-digit range.