Important to real estate loan
- Include credit charges
In addition to the purchase price of the property you should also take into account the additional costs that may be incurred: brokerage fees or land transfer tax are just a few. These may increase the financing requirement.
- Fixed interest can make sense
In periods of low interest rates, interest rate fixation can make sense. Should interest rates then rise, you will continue to benefit from the agreed lower interest rates.
- To arrange special repayments
In order to be able to repay the real estate loan as unproblematically as possible in the event of an unexpected cash inflow, you should make special repayments – or make sure that these are simply possible.
Financing real estate through credit is the rule in Germany when it comes to buying real estate – because hardly anyone can raise the capital to pay for a house or apartment at one go out of pocket.
In addition to the points to be noted in a regular loan, lurking in the real estate loan, however, still some more pitfalls. Only if you set the debit interest, repayment installment and equity ratio correctly, you will be able to serve your loan easily at any time – even if it is financially worse. FinanceScout24 will tell you what to look for in real estate loans and how to find the right loan for you.
Real estate loan compared to other forms of credit
Basically, a real estate loan does not differ from other types of loans: The lender, usually a bank, leaves the borrower a previously agreed sum, which – plus interest – must be repaid within a certain period of time. As a real estate loan, however, generally involves significantly higher sums than a regular installment loan, there are some special features to consider here.
Thus, the acquired property also serves as collateral for the loan in private real estate financing. In addition, the bank usually pays out the loan only earmarked, so you as a borrower can not freely dispose of the loan amount. In addition to the financing of a property, it is usually also possible to use a real estate loan for modernization measures; other uses are excluded.
Term, repayment & Co.
Before you decide on the credit financing of a property, you should consider carefully whether a real estate loan makes sense in your current life situation. So there is not the one, right time or the one, right age for the purchase of a property. However, there should be some requirements if you want to take out a real estate loan.
Often, banks require the borrower to finance part of the property out of equity. With an apartment for 100,000 euros you could, for example, finance 50,000 euros by credit, the rest you would have to raise out of pocket. As a rule, this is not possible for career starters. But you should not wait too long with real estate financing, because with credit terms of ten, twenty or more years, it will be difficult at a certain point in time to build up assets for old age. If the borrower is about to retire, the bank will set strict limits on the term and repayment amount – or refuse financing altogether.
If you have decided to take out a real estate loan, you should absolutely compare the offers in advance. Our credit comparison helps you to find cheap real estate loans that fit your life situation. When comparing the offers, it is important to note the following points in particular:
- Amount of loan amount
- Term / repayment amount
- Type of eradication
- target rate fixation
So that you find the suitable real estate loan, we now explain the individual features.
Amount of loan amount
The amount of the loan amount is calculated from the purchase price of the property minus the existing equity capital – however, the maximum amount may be 50,000 euros. Be sure not to use your entire cash reserves to finance the property. If unexpected expenses are pending, you can otherwise bring financial difficulties quickly. In addition, a property must be maintained, so it makes sense to have a small upholstery available for these expenses.
Calculate credit charges
Since a real estate loan is secured by a mortgage on the financed property, this will cost the notary. In addition, as a buyer, you usually have to pay the brokerage commission. These costs are often not covered by the loan because they are earmarked and should therefore be taken into account when calculating the available equity.
Term / repayment amount
The duration or amount of the repayment installment depends to a large extent on the amount of the loan and your financial resources. In general, a shorter term is always more advantageous since the interest payments increase by a higher factor than the term. For example, if the term tripled, interest payments could well rise by a factor of four.
Shorter durations are preferable, but the monthly rate must of course still be affordable. Calculate here somewhat conservatively, because with maturities of ten or more years, there is always the risk that your living conditions change and you then brings a too high rate elected in trouble. If you have any capital left in one year, you can shorten the term of the loan through a special repayment.
Type of eradication
As a rule, real estate loans are so-called annuity loans. This means that you pay a consistent monthly rate over the entire term. However, the interest and redemption portion of the rate change gradually. Since your payments begin directly with the repayment, the interest portion decreases over time, while the amortization portion increases.
As an alternative to the annuity loan, there is still the fixed loan with repayment compensation. Here you only pay a constant rate for the interest to the bank, while the payments for the repayment in a so-called amortization surrogate flow. This may, for example, be a life insurance with which the loan amount is repaid at the end of the repayment term.
The advantage of this variant is that you can generate a return on the repayments. However, the interest payments here are generally higher overall than with the annuity loan, since the loan is redeemed only at the end of the term. Whether or not a term loan makes sense depends on the situation – but in any case, you take a higher risk because you need to use the repayment surrogate to generate sufficient return to offset the higher interest payments.
target rate fixation
For most real estate loans, a debit interest is agreed. This means that interest on real estate loans over a certain period of time – usually between five and 20 years – are fixed. Should interest rates rise during this period, you, as a borrower, are lucky, because you benefit from the fixed, lower interest rates. If the interest level falls against it, you have had bad luck, because even in this case, the previously agreed interest rate continues to apply. A long-term fixed interest rate is therefore useful especially in times of low interest rates, while at a high interest rates a short-term fixed interest rate is recommended.
A special repayment, so an extraordinary repayment, is in principle possible with any loan, but the bank then usually requires a prepayment penalty. As a result, a maximum annual special repayment installment, up to which no penalties are payable, is usually set by contract. So you can put a capital surplus directly into the shortening of the term. Here are usually between five and ten percent of the loan amount.
So if you want to make a repayment, first check whether you would have to pay your bank a prepayment penalty. In some cases, then, for example, a loan remortgage to cheaper rates again unattractive.
In the promotion of particular programs of the Kreditanstalt für Wiederaufbau (KfW) are interesting. It grants – loans through other credit institutions – loans for the construction and purchase of real estate. In particular, the purchase of energy-efficient real estate is being supported by KfW – with a maximum amount of EUR 50,000. As KfW’s loan offers are usually very cheap, it is usually worthwhile to take advantage of them. Any additionally required capital can then be financed via a regular real estate loan.
After the loan is before the loan
Given the sums involved in real estate financing, it is not possible for most borrowers to repay the entire loan amount within the agreed term of the borrowing rate – so there is a residual debt. This usually has to be covered by follow-up financing. Since you are not bound by the bank that originally granted the loan, you should take care of follow-up financing at an early stage – ie several months before the end of the fixed-interest period – and seek the appropriate offers.
If the interest level is already at a very low level a few years before the expiration, a so-called forward loan may be worthwhile. This is a regular loan, but the payout will only take one to five years. They thus secure the current interest rates – but then have to hope that the interest rate until the payment does not fall even further.
Alternatively, you can also reclassify the real estate loan at a very low interest rates. This is especially useful if your borrowing rate is well above the current level. Note, however, that you often have to pay a high prepayment penalty in case of early termination. If your credit has been in effect for at least ten years, you may terminate the contract in accordance with § 489 BGB with a notice period of six months, without the lender being allowed to demand a fine.
What documents are needed for a real estate loan?
As with any other loan, the bank also checks the creditworthiness of the applicant for the real estate loan. For this it usually requires the following documents:
- current payroll or profit and loss account for self-employed
- Income tax assessment and tax return
- Proof of equity (account or securities account statements)
- Proof of further income or credit obligations
- For several donors: financing commitments
In addition, the mortgage lender still requires documentation on the property itself – which is exactly what can vary slightly from bank to bank. As a rule, however, the following documents are required:
- Land register excerpt, site plan and floor plan, living area calculation and photos of the property
- Standard value description of the tax office for the property
- Proof of a fire insurance policy
- For a flat in addition to the division declaration
- Total cost statement for the acquisition
If all documents have been submitted in full, you can expect to receive a binding loan commitment from the bank within one week.
14 days right of withdrawal
After completion of a real estate financing, you have the opportunity to withdraw from the real estate loan by revocation within fourteen days. The contract will not come off then. The cancellation policy for real estate loans is very well defined by the legislature – if the lender does not completely and correctly clarify your rights, the fortnightly period does not begin. In this case, a revocation can also take years after the start of financing.
Real estate loan without equity or Private credit
As a rule of thumb in real estate loans applies: 20 percent of the purchase price should be covered by equity. But many banks also offer a so-called full financing, in which the borrower no longer contributes equity to the purchase price. Thus, the borrower gets its liquidity, which he buys, however, by a higher interest rate.
A real estate loan without equity capital is therefore always more expensive than a loan with equity. In addition, a higher residual debt remains after the end of the first fixed interest period. If the interest rate is only one percent higher for financing without equity, the interest costs can well double or even triple – so you should think very carefully in advance whether a full financing makes sense. As a rule, it is only recommended if financing with equity capital must be ruled out for serious reasons.
The situation is similar with real estate loans without Private credit. As a rule, such loans are offered by foreign banks. Of course, they check the creditworthiness of their customers just as thoroughly as the German banks, but a query of the Private credit data is usually omitted – or the rating of the data is less significant. In this respect, such financing is especially interesting for persons with negative Private credit entries, for whom it is difficult or even impossible to obtain a real estate loan in Germany. Of course, the necessary financial resources to operate the loan must also be available in this case.
As banks always assume that these types of loans are subject to increased credit risk, interest rate premiums of up to three percentage points on the usual interest rate level are not uncommon. A real estate loan without Private credit is therefore only recommended if other funding is excluded. In addition, you should make sure that the bank has its seat in the euro area, since otherwise the credit can become more expensive due to the foreign currency risk.
questions and answers
What happens with arrears?
Should you ever be unable to pay a mortgage loan, you do not have to expect the foreclosure sale. According to the Risk Limitation Act, which came into force in 2008, the lender is only allowed to terminate the loan agreement after a 2.5 per cent arrears of the loan amount – this value is usually only reached after several months in the case of a real estate loan.
However, if it is foreseeable that you will not be able to pay the installments for an extended period of time, you should contact your bank immediately to find a solution. As banks are generally not interested in terminating the loan agreement, they can in most cases find a way out. However, should it not come to an agreement with the bank, this may dissolve the contract. If you have no other option to settle the remaining debt, your property will be foreclosed.