The different forms of home finance
High rents, annually rising property prices and the opposite low building interest, are currently causing many consumers to think about fulfilling their dream of owning a house. The client can choose from a wide range of forms of mortgage lending that cover very different types of loans. The loans are therefore designed for certain types of borrowers, but it is not possible to say in general which of these types of loan is the most suitable. It always depends on the individual case.
Once the potential borrower has found his dream property and finds the selling price acceptable, he must determine his personal needs with regard to the construction finance and, on the basis of this, obtain the appropriate construction financing online or visit the individual credit institutions on site and seek advice. It is important here that you not only orient yourself to the current situation, but also plan ahead.
The following types of mortgage lending are available to the client:
Most frequently used construction loan
Annuity loan: this form of financing is the most frequently used construction loan. Annuity is a constant annual contribution that the borrower has to pay off. Depending on the agreement, the interest rate can be fixed or variable and applies over a certain period of time. During the term, the repayment portion increases in line with the number of payments made. The repayment amount is usually 1 percent of the loan amount in the first year and then rises continuously until the loan has finally been repaid in full.
Building finance without private credit checker: The private credit checker (protection association for general loan protection) has certainly already thwarted many prospective builders and buyers. But there are also specialized providers that allow consumers with negative entries in the credit agency database to obtain construction finance. In the case of such construction financing, the applicant’s creditworthiness is checked on the basis of his job, income (also from rental income) and existing assets. The borrower’s place of residence and marital status as well as the location of the property to be financed also play an important role. However, since there are not too many credit institutions that offer this type of construction finance, the competition that builders could benefit from is still pending. So you usually have to accept a higher interest rate.
Variable loan: Construction financing with an unfixed interest rate can take various forms, for example also as an annuity loan , in which the annuity changes if the interest rate changes. The interest on variable-rate mortgage loans was mostly based on a reference interest rate. The most frequently used references in Germany. This construction finance harbors the risk of rising interest rates.
Risk and costs are low
Hire purchase: Risk and costs are low with this form of construction financing, but the residual debt is only slowly paid off, which extends the financing period. The tenant pays a certain monthly amount to the seller of a property and thereby acquires the right to purchase the inhabited property at a fixed price at any time. The parts of the payments made are deducted from the purchase price. This variant could be described as “trial property”, so to speak. However, the payments to be made initially are very high due to the combination of advance payment and rent.
Full financing: With this variant of construction financing, the bank extends the entire purchase price of the house. So if you don’t want to miss the current low interest rate, this form of home finance will give you the opportunity to implement the “Homeownership Project”. In the context of full financing, in addition to the construction costs or the property, the ancillary purchase costs and the interior furnishings are also financed. So that if you include real estate transfer tax, notary fees and brokerage fees, the total volume of the loan to be granted can amount to up to 120 percent of the property value. However, since the bank has to bear the significantly increased default risk in this case, the interest rates are accordingly higher than with the other variants. Nevertheless, if the expected annual increase in construction costs or property prices exceeds the risk premium of construction finance, full financing can be worthwhile.
This form of mortgage lending benefits
Repayment loan : Anyone who chooses this form of mortgage lending benefits from a particularly low interest rate and a short financing period. In return, the borrower must be able to finance comparatively high monthly loan installments. This type of mortgage lending is characterized by a full repayment of the loan used during the fixed interest period of the loan. The term of a loan that is to be repaid in full is usually twenty to thirty years.