Six Rules For Home Financing. Interest rates are historically low, but the house and apartment prices are rising. If you want to fulfil your dream of owning your own home, you have to plan carefully and with foresight. Most people have their own home at the top of their wish lists. Fulfilling your dream is more tempting than ever: everyone has been talking about historically low building interest rates for years. A loan for your property is cheaper than ever.
Planning with a sense of proportion
This shows that low-interest rates are one thing; market developments are another. So you get little of your around 1 per cent building interest if you have to finance horrendous purchase prices with it. Besides, the higher the purchase price, the more likely it will be a follow-up financing. Whether interest rates will then be as low as they are today is another matter. Anyone who wants to have a bit of planning security here is well advised to conclude a home loan and savings contract early on.
Despite or maybe even because of the low-interest rates, the following applies: Real estate financing must stand on solid feet and be planned with foresight – with these six components:
1. Bring sufficient equity
With substantial financing, the equity ratio for owner-occupied homes should be at least 20, better still 30 per cent, despite low-interest rates, advise consumer advocates. Here, among other things, the early conclusion of a building society loan agreement is suitable, which ensures not only a systematic build-up of equity capital but also low-interest rates. The more funds the borrower brings with them, the more favourable terms they can expect.
Nevertheless, interested parties have to compare well. A few thousand euros more equity capital can lead to significantly lower interest rates for one bank but only have a slight or no effect on the other.
2. Fix favourable interest rates for as long as possible
Anyone who has got hold of perfect conditions should secure them for as long as possible. Or make provision with a home loan and savings contract. Some lenders offer fixed interest rates for 15 or even 20 years.
Good to know: Nevertheless, the borrower can always terminate his contract ten years after the loan has been paid out in full, giving six months’ notice without risking a prepayment penalty.
3. Use interest savings to repay
What borrowers are currently saving in loan costs, they should invest in higher repayments right from the start—clear advantage: The loan is repaid more quickly this way. A repayment rate of at least two per cent is recommended as a guide.
4. Stay flexible
The loan must adapt to life and the economic changes that come with it, not the other way around. Therefore, the loan agreements should allow the following as possible:
- Repayment rate change also during the fixed interest rate
- Regular special repayments
- Combinations with government subsidies
5. Don’t forget additional costs
The ancillary purchase costs can quickly amount to around ten per cent of the purchase price. Even the real estate transfer tax is between 3.5 and 6.5 per cent, depending on the federal state. Also, there are the fees for the notary and the land registry and, under certain circumstances, a broker’s commission.
Stable long-term financing must also include the running costs for the property – electricity, heating, insurance, maintenance – from the outset.
6. Secure an emergency
A loan binds you for a long time. The instalments have to flow month after month. But what if, for example, one of the earners falls ill for a long time or even dies? Borrowers take out occupational disability or term life insurance to ensure that the family does not have to sell directly.