Low Interest Rates Beware Of Hasty Real Estate Financing. For consumers who want to buy a house or an apartment, the current low interest rate situation is tempting at first glance. Given the very low loan interest rates at the moment, it seems that everyone can afford their own house or apartment. A home loan contract concluded today usually runs for the next 10 to 15 years. Then the fixed interest ends, but the house is usually not paid off in full. Logically at the then applicable interest rates. And nobody can predict how high these will be. So if a consumer can barely afford the monthly installments today, the higher interest rates will kill him later.
CONSIDERATION OF ALL EXPENSES
It is therefore essential for every home buyer to think carefully about their financial situation in advance. How much income is available, what expenses are to be deducted and what amount can then be used for loan repayment? The expenditure side in particular should be viewed self-critically. These include, for example, spending on food, leisure, heating, living, clothing, reserves – in some cases points where it is difficult for the individual to say how much he actually spends on it over the year. In addition, buying or building a house should not be 100 percent financed by a loan. Rather, an equity share of at least 20%, even better even 30%, should be saved. You should also be able to pay the incidental construction costs or purchase costs – these can amount to up to 15% of the purchase price – from your own resources.
BEWARE OF COMBINATION PRODUCTS
The promise may sound tempting at first glance when it says, for example: Don’t just finance the property with credit, but also acquire shares or equity funds. In times of rising stock market prices, the profits will allow you to pay off your loan much faster!
But be careful! The prices on the stock exchanges do not only know the way up. Even with falling prices, they have to continue to service the current loan. Therefore, you should never take out a loan for an investment. It is better to forego such combination products and limit yourself to pure real estate financing.
LONG FIXED INTEREST RATES, HIGH REPAYMENT
If you come to the conclusion that a property can be solidly financed, you should definitely think about a fixed interest rate as long as possible and the highest possible repayment. Both offer a certain protection against rising interest rates after the fixed interest rate has expired. With long contract terms, you secure the agreed and therefore calculable interest for as long as possible. The monthly load can thus be planned for a longer period of time. On the other hand, you will not benefit if loan interest rates drop even further. With a high repayment, you achieve a lower residual debt at the end of the fixed interest period. A possibly higher interest rate has less of an impact.
THE FOLLOWING POINTS IN PARTICULAR MUST BE OBSERVED:
- Also in the current low interest rate era, those who have not been able to afford a house up to now can not.
- Take into account the risk that you may have to pay higher interest later – after the fixed interest rate has expired! Also in the current low interest rate era, those who have not been able to afford a house up until now will not.
- Assess your financial situation and the affordable loan installment self-critically!
- Check whether the longest possible fixed interest rates and high repayment installments are sensible and possible for you!
- Because of the low interest rate era, real estate demand has risen for a long time. However, higher demand usually means higher prices, ie the properties tend to be more expensive. So check very carefully whether the property you are interested in is really worth the price.