For around 80 percent of Germans, owning their own property is the top priority on the wish list. For most, this wish can only be realized with a home loan. The Lenders Bank ‘s low interest rate policy gave many tenants the chance to fulfill their dream of owning their own four walls. See for yourself how low interest rates are: Enter the data on your home purchase in the home loan comparison at Vibeloan Bank. The cheapest offer will be determined for you from hundreds of banks and savings banks.
This is how a home loan works
A building loan is colloquially referred to as “house loan”. A mortgage is a very long-term loan secured by the property itself, the total term of which is often between 20 and 40 years. The duration of the fixed interest rate must be differentiated from the term: it is usually five or ten years for a home loan. Follow-up financing follows.
Real estate as security for a home loan
As a security, no salary assignment, as with an installment loan, and no assignment of the motor vehicle letter, as with a motor vehicle loan, are required for a home loan. Either a mortgage or a mortgage on the house or apartment is entered in favor of the financing bank. However, mortgages are in the background, in 90 percent of the cases mortgage is secured by a mortgage.
While the amount of a mortgage theoretically has to be adjusted with every repayment, the mortgage remains in full over the entire term of the building loan. The land charge can remain after final repayment and can be ordered later as security for a new loan. The bank’s claim to the house expires with the payment of the last repayment.
Equity on home loans
As a security, the bank does not accept the purchase price of the property, but a mortgage lending value, which it determines based on objective criteria. It rarely corresponds to 100 percent of the purchase price.
As a rule, customers should finance a maximum of 80 percent of the purchase price when buying a house. Solid construction financing provides for 20 percent of the purchase price plus the incidental acquisition costs from own funds. The following are considered equity:
- Cash assets
- mortgeable securities
- Building society savings
- ceded surrender values from life insurance
- Loan from the employer or relatives
- Own contribution
A high proportion of equity is important for customers in order to receive cheaper interest. In addition to equity, individual interest rates depend on many other factors, such as the customer’s creditworthiness or the duration of the borrowing period.
The general level of interest on mortgage lending is primarily based not on the key interest rate of the Lenders Bank, but on the Pfandbrief index. The key interest rate has only a limited impact on the Pfandbrief index.
In addition to the annual interest rate, a house loan can also incur additional costs – such as commitment interest, if the loan amount is only called up after a few months. A prepayment penalty is due if the loan is terminated before the fixed interest period expires. Real estate itself also incurs costs – for example through taxes or insurance.The guide offers an overview of additional costs for buying a house and maintaining a property.
Basically, it is advisable to compare the offers available on the market in order to find optimal home financing. The home loan calculator at Vibeloan Bank will help you with this.
Further building blocks for real estate financing
Real estate financing can consist of several different loans. In addition to the house loan described above, this can also be a home loan, a money loan or an employer loan.
- Home savings loans have a comparatively short term. This means a quick and therefore cheaper repayment, which, however, is offset by a comparatively high monthly charge.
- Low-interest money loans are used both for pure construction finance and for special projects – for example to improve energy efficiency or for barrier-free living.
- Employer loans are added to equity by banks, but must be subject to strict tax regulations. If these are disregarded, there is a risk of tax liability on income-like special payments.