Answer: To clarify which type of loan you should choose to finance your property, briefly introduce the most common types.
As a rule, you take out a so-called annuity loan. Here, the monthly installments remain unchanged during the entire repayment term. Furthermore, long fixed interest periods of 20 years are quite common. The annuity loan offers you such a high degree of planning security . However, if the interest rates at the time of borrowing are high, it may be advisable to use variable interest rate arrangements. So you benefit from future falling interest rates.
The rates of the annuity loan consist of repayment installments and interest payments. The longer your credit runs, the higher the share of the repayment and the less interest you have to pay. Unless you pay off your loan exactly according to the repayment plan, this information is irrelevant to you. This is important only if you want to replace your loan before the end of the contract period. The cost of premature redemption is calculated on the basis of the repayment amount .
An example should clarify the facts
Loan amount: 200,000 euros, negotiated annual annuity: 20,000 euros, fixed rate: 5 percent.
At the end of the first year you pay the rate of 20,000 euros. This consists of 10,000 Euro interest payments and 10,000 Euro repayment installment. Your remaining debt is now 190,000 euros.
At the end of the second year, you will pay € 20,000 back to The Bank. However, you now only have to pay 9,500 euros (residual debt * interest rate) interest and repay 10,500 euros (annuity – interest) of your loan. The remaining debt is thus 179,500 euros.
Bauspar is also widespread in this country. It is a combination of savings and loan agreement. You as the future builder pay monthly or yearly money on their Bauspar contract until it reaches about 40 to 50 percent of the total home savings. From then on, you will be legally entitled to a low-interest loan if you are creditworthy.
A loan with such favorable conditions you will receive only in extremely low interest rates . The disadvantage, however, is that you have to start saving years years before building your home.
A less common form is the financing of the construction by means of a life or pension insurance. You can deduct all interest on debt. Who wants to buy and rent his property merely as an investment, benefits most from this type of financing.
During the entire life of the loan, you pay only interest and no repayment installments. At the end of the contract, the life or pension insurance is then offset against the loan amount. In addition to tax benefits, you protect your loved ones. In case of premature demise of the builder, the credit is covered by the life insurance and the survivors do not sit on the debt.
In principle, you should now be clear which form of mortgage lending makes sense for you personally. Who wants to build at short notice, should almost always resort to the usual annuity loan. But if you are already sure that you would like to build in five, ten or even fifteen years, then classic building society savings still pays off. If the property is to be rented, it is advisable to consider alternative financing such as life insurance.