From A for provider to Z for fixed interest rate. We explain the most important terms relating to buying and financing.
Foreign currency loans, muscle mortgages, market and mortgage lending values, fixed interest rates – property buyers are suddenly confronted with these terms and feel overwhelmed when it comes to making the right decision.
So that you are well prepared for the often lengthy process of buying a house or apartment, we explain briefly and precisely what is behind the terms and what you should bear in mind in each case.
banks warn their customers again and again against "direct providers". There is a lack of service, the credit would not work out. It is true that direct providers do not provide advice, so the customer must know, for example, which interest rate lock-in he wants to enter into. However, the customer usually receives the loan agreement ready for signature more quickly than at the "house bank". In addition, the interest rate for direct providers is on average 0.1 to 0.2 percent better. Local banks have now caught up with high loan-to-value ratios.
Advice is important, but not every bank gives really good advice either. Many banks now only sell financing, and they sell whatever makes the most money for the bank. You should therefore seek advice from institutions (u. A. The consumer centers), which do not earn money with financing. direct providers do not have to pay their intermediaries. The bank takes care of this. However, if the financing is complicated (too little own money, self-employed, complicated interim financing), some direct providers do not fit the bill. Large direct providers (small& co, interhyp) have now also started to advise their customers locally.
Many believe that buying real estate is not possible without a home savings contract. Some home savings contracts are difficult to integrate into a financing arrangement. In view of the low level of interest rates, the effective interest rates for many tariffs are uninteresting. building savings is only worthwhile if you are betting on a sharp rise in interest rates.
But even attractive interest rates on loans from building societies always have a flip side: low interest rates on credit balances.
In most cases, building savings have not paid off in the past. Besides that, the burden of home loans is high. the standard rate provides for repayment within ten years. Interest and repayment thus exceed 10 percent of the loan amount each year. However, rapid repayment is not everyone’s cup of tea. the average financing time in germany is 26 years. The best tariffs of the building savings banks have been examined by the magazine finanztest. But even the right choice of tariff does not guarantee that the conclusion of a home savings contract will be worthwhile for the home saver.
What makes for good advice?
The person seeking advice should also prepare for the consultation. he should compile the following documents: statement of income and expenses, own money, costs of the property. Very important: since all savings contracts are available for financing, it should be clarified what will happen to existing endowment and pension insurance policies in the future. The same applies to existing building society contracts or, if applicable. other financial investments such as savings plans, funds, etc.
During the consultation, it should first be clarified whether financing is possible and, if so, in what amount. Family planning should be taken into account. The advantages and disadvantages of the various forms of financing (amortizing loans, prefinancing of home savings contracts, deferred repayment models) should be explained. It should be checked whether a public subsidy is possible (hamburgische investitions- und forderbank, investitionsbank, etc.).) and which loans from the kreditanstalt fur wiederaufbau (k) can be integrated into the financing. The different interest rate lock-in options (20 years, ten years, five years or longer) and the protection of the financing (term life insurance) should be discussed in detail.
Every real estate buyer should have his or her own money. 15 to 20 percent of the total volume (purchase price plus incidental purchase costs) is necessary. More own money never hurts. If the customer has a good credit rating, some providers are prepared to finance up to 100 percent of the purchase price. ancillary costs, but also accessories (such as.B. Kitchens) or renovations are not financed as well.
loans from the kreditanstalt fur wiederaufbau do not replace own money. Since the banks guarantee the repayment of these loans, they do not improve the financing situation. personal funds are often hidden in existing savings contracts (e.g. B. life and annuity insurance). Here it should be examined very carefully whether these contracts are not better terminated. Own contribution to construction (so-called muscle mortgage) only replaces own money to a limited extent. Overestimating your own contribution is one of the most common reasons for financing failure.
Never put all of your own money into financing! A "nest egg" (5.000 to 10.000 euro) should always be kept back. A certain amount should also be available for the period of overlap between rent and financing costs until the time of moving in.
In the south of germany it is common to take out real estate loans with swiss banks. As interest rates are lower in switzerland, this seems to make economic sense at first glance. It is overlooked that the loans are in swiss francs. The borrower has a loan with a favorable interest rate, but bears the currency risk. If the exchange rate of the swiss franc rises against the euro, the borrower must pay more accordingly. The interest rate advantage can be compensated very quickly. However, if the borrower has income in swiss francs – which may be the case in swiss border areas – this does not apply. Japan has an even lower interest rate level. Most German banks are in a position to arrange the corresponding loans. Since these loans require a great deal of supervision due to currency fluctuations, financing amounts of less than 300.000 euros difficult to obtain. Conclusion: for professionals and for higher financing volumes, foreign currency loans are definitely an alternative, for the normal real estate buyer such loans are too speculative.
Depending on the federal state, 3.5 to 6.5 percent land transfer tax must be paid on each purchase price. The land transfer tax does not apply if the property is sold to relatives 1. order is sold (parents, children, grandparents). The land transfer tax is due with the conclusion of the purchase contract. Every contract is submitted to the tax office by the notary public. If the real estate transfer tax is paid, the tax office will issue a certificate of no objection. Without this certificate, the buyer will not be registered as the new owner in the land register. If accessories are shown in the purchase contract, no land transfer tax has to be paid on them. Accessories are everything that is not permanently attached to the building and can be removed at any time, e.g. B. Fitted kitchens and furniture. Attention, accessories are not co-financed by the banks.
In the case of new buildings, real estate transfer tax must be paid not only on the land but also on the construction work, even if the land is not purchased from the developer but from a third party. If the builder is no longer free to decide with whom he builds, land transfer tax is payable on the entire volume of the project.
Interest on loans is higher than interest on savings. This simple basic rule is not taken to heart in many a financing transaction. The faster you repay a loan, the more you save. Therefore, the borrower should repay his loan directly as quickly as possible and not save in parallel instead. It would only be worthwhile for him if the guaranteed savings interest rate were higher than the loan interest rate. But this is only in exceptional cases. If it would work, we would all be rich. We would take out loans and invest the money at a higher interest rate and could live off the difference.
Therefore, if financing is required, all savings contracts are at the disposal of the borrower. Any form of financing in which the loan is not repaid directly, but a savings contract is concluded for repayment, is problematic. This is especially true when financing owner-occupied real estate. In the case of rented property, the following may apply for tax reasons. Forecasts for savings contracts (z. B. In the case of equity funds, life and pension insurance) are not reliable. The only decisive factor is the guaranteed interest rate.
The search for real estate usually takes longer than expected. Several months are not the exception, but the rule. A feeling for the prices on the market develops gradually. Every buyer should have inspected 20 to 25 properties before deciding on a property. Information on reasonable purchase prices in Hamburg is provided by the appraisal committee of the building authority (0900 1 880999, €0.24 per minute from a landline; more on mobile phones, plus €25 per reported value), to which every sale is reported. Property prices can be negotiated. On average, real estate prices are reduced by approx. 10 percent negotiated down. Transport links and the surroundings of a property are important. There is no warranty for old real estate. Therefore, experts should be consulted (z. B. consumer advice center or association of private builders), who check the structural substance of the building. You should always view a property at different times of the day and on different days of the week. Light and noise conditions can be very different and can have a very negative impact on the value of a property.
Every real estate financing should be preceded by a cash crash. Even with the current low interest rates, the burden is usually higher than the rent paid to date. If it has not been possible to save money in the past, and if the burden of financing is usually significantly higher than the rent, this means considerable restrictions on the previous standard of living.
Almost always underestimated are the costs of the car. It is virtually impossible to keep a car for less than 200 euros per month. "out of town" means a lower purchase price, but on the other hand also higher costs for mobility. If the second car can be saved, 50.000 euros more can be financed. Every savings contract stands (z. B. Also endowment life and annuity insurance policies) available for financing. For a simple reason: interest rates on loans are higher than interest rates on savings. An insurance check can lead to considerable savings. Many insurances are superfluous, most are too expensive. On the other hand, not everything should be subordinated to the purchase of the property. Owning your own house does not make you happy.
In addition to the land transfer tax, there are notary and land registry fees (1.5 to 2 percent). Real estate purchase contracts without notarization have no effect. A settlement via a notary escrow account is always recommended if the property is still encumbered. Whereas purchase contracts for existing properties are rather unproblematic, purchase contracts for new buildings, but also contracts for work and services that do not have to be notarized, should be drawn up by experts (e.g., a notary public). B. lawyers of the verbraucherzentrale) should be examined.
All contracts should be understood! This is not always easy, because they are usually written in legalese that is difficult to understand. The notary also helps here by reading out the entire contract again when it is signed. In the case of contracts between companies and private individuals, the agreements must be submitted to the buyer two weeks before signing. But in all other cases, too, a contract should never be signed under time pressure. Brokerage fees do not have to be notarized with the purchase agreement. Although this is in the interest of the broker, who can immediately enforce the contract in case of non-payment. In this case, however, the buyer has unnecessarily higher costs.
Notaries can be freely selected. Local jurisdiction does not exist.
Appraisal costs do not have to be taken into account when determining the effective interest rate. Direct providers usually waive this fee. With all other providers, the waiver of these costs (100 to 300 euros) can be negotiated. Hardly any bank really appraises the property. Construction documents and a photo are usually sufficient. Only in the case of financing over 300.000 euro, appraisers are also called in.
If the credit is not called immediately, with the new building this is usually the case, most banks are required after three months provision interest (1.8 to 3 percent p.A. On the amount that has not yet been called). But even here you can negotiate with the providers. Good providers offer loans free of interest for six months, and very good ones for twelve months.
Dividing the loan amount between different interest rate commitments is sometimes popular, but is also not entirely unproblematic. In principle, the financing should be kept as simple as possible. A split can be useful if the borrower expects an amount to be paid at a certain time. In this case, the fixed interest rate should be selected in such a way that it is possible to redeem the loan at this point in time. In the case of partial loans, however, many banks require minimum sums (30.000 euros or more). Splitting the loan can also make sense if you are speculating that two shorter interest rate lock-ins (lower interest rates) are possible!) are better than a long fixed interest rate. If the interest rate decreases or remains the same, this strategy will work. If fixed interest rates overlap, the customer cannot switch because the other loan cannot be redeemed. Partial financing via another bank is not possible, as the loan cannot be secured in the first place in the land register. This situation is exploited by some banks (bad interest offers). Therefore, you should make sure that all interest rate lock-ins end at the same time after a certain period of time. The borrower does not have to accept the offer of the financing banks, but can change the provider.
Refinancing of real estate loans is always recommended. Completely overlooked is the fact that borrowers are generally not entitled to repay loans early within a fixed interest period, even if they are willing to pay an early repayment penalty.
Most banks generally reject early repayment. If the bank agrees to repayment, it is free to determine the price for repayment (prepayment penalty). The compensation must not be immoral. Not every debt restructuring is worthwhile. The residual interest rate to be compensated should not be longer than three to four years. Otherwise, the interest advantage is virtually "eaten up" by the early repayment penalty. The verbraucherzentrale hamburg checks whether the early repayment penalty has been calculated correctly.
Two terms that are often confused, but whose distinction is very important for any construction financing. finally, the interest rate depends on the respective market and mortgage lending value. The higher the loan value, the lower the interest rate. The market value is generally the purchase price, unless this is obviously too high and not in line with the market. Most providers finance up to 90 percent of the market value, a few even 100 percent. More than 100 percent is not financed or only in exceptional cases.
The mortgage lending value of a property is at least 10 to 15 percent below the market value (security discount for the bank). If the purchase price is 100.000 euros, a bank that uses the mortgage lending value as a basis will finance a maximum of 90.000 euro (= 100 percent mortgage lending value). 60 percent mortgage lending value (= real loan) is considered safe by lenders.
In this area (up to 54.000 euro in the above example) there are the best interest rates. If more must be financed, interest surcharges of up to 0.3 to 0.4 percent are added. Movable items (accessories), z. B. Kitchens, are not taken into account when determining the value.
If a loan is repaid while the interest rate is fixed, the borrower must pay an early repayment penalty to the bank. The calculation of the early repayment penalty has long been controversial. However, the Federal Court of Justice has now largely specified the calculation steps in a series of decisions.
After that, the repaid money is invested (fictitiously) on the capital market. The current Pfandbrief yields are decisive. The difference between these yields and the interest rate on the loan (nominal interest rate) gives the loss. The calculation must also take into account the fact that the bank will no longer manage the loan in the future and that risk provisioning is no longer required.
The approaches of the banks and savings banks vary widely here. While the consumer advice center, in its reviews, calculates the saved expenses at 0.15 percent p.A. Some lenders are well below this (0.0 percent p.A. Up to 0.06 percent p.A.). It is disputed at which cut-off date the calculation must be made. Since yields change daily, prepayment penalties can fluctuate significantly within four weeks. There are considerable differences in the cost of the calculation (100 to 500 euros).
In principle, no more than 40 percent of net income should be spent on a property. Special payments such as Christmas or vacation bonuses are not taken into account.
An example: family with two children, net income of the husband 2.200 euro, two child benefits of 192 euro each plus 400 euro income of the wife, a total of 2.984 euro per month. Forty percent is 1193 euros. Incidental costs for the house (heating, water, insurance, etc.) are not included.) at least 2.50 euros per square meter and month will be incurred.
For 100 square meters, the incidental costs are 250 euros.This leaves 943 euros for the financing. With an interest rate of 2 percent plus 2 percent repayment (fixed interest rate for 15 years), the monthly costs are 333 euros per 100.000 euro amount financed. The family can thus save 283.000 euro financing. In addition, the own money (in this case 50.000 euro). The total volume can thus be 333.000 euros. up to 13 percent in incidental purchase costs can be incurred (4.5 percent land transfer tax, 1.2 percent notary and land registry costs, 6.5 percent broker’s commission). The purchase price of the property can thus be up to 294.000 euros. Special funding opportunities through the kreditanstalt fur wiederaufbau or z. B. By the hamburgische investitions- und forderbank (IFB hamburg) are not yet included in this calculation.
Every interest rate lock-in, whether longer or shorter, has advantages and disadvantages that need to be weighed up. All interest rate lock-ins of more than ten years can be terminated unilaterally by the borrower ten years after disbursement of the loan (Section 489 of the German Civil Code), but with a notice period of six months. This right cannot be excluded by contract. The lender cannot cancel the loan. With a fixed interest rate of 15 years, the customer can wait out the last 4.5 years until the interest rate level is favorable for him or her. Then he cancels and takes out a new contract. This flexibility has its price. Loans with a fixed interest rate of 15 years are approximately 0.5 percentage points more expensive than ten-year fixed rates. For a loan over 200.000euro, the customer thus pays 83 euros more per month. Viewed over 15 years, this is still 15.000 euro.
Some people prefer to use this amount for repayment, but then they are not as flexible when it comes to follow-up financing. Longer fixed interest periods than 15 years are also possible, in some cases up to 40 years, whereby a further interest surcharge – depending on the term – of 0.1 to 1.0 percentage points must be paid. However, not all lenders offer interest rate lock-ins for as long as they should.
The choice of the fixed-interest period is perhaps the most important decision in financing. There is no patent remedy, because no one knows how interest rates will develop over the next few years. Vendors like to recommend long interest rate lock-ins (ten or 15 years), because this also ties the customer in for the long term. In retrospect, however, all long-term commitments have been wrong in the last 15 years because the interest rate level has fallen. Those who commit themselves for the long term are betting on rising interest rates, while those who commit themselves for the short (variable) or medium term (five years) are betting on falling or constant interest rates. There is much to suggest that interest rates will tend to rise over the next few years, but interest rates of over 6% are not necessarily to be expected. In addition to interest rate speculation, however, the borrower’s need for security is also a decisive factor in the choice of fixed interest rate. no financing is worth losing sleep over worries about interest rate increases. In this case, financing should be long-term. Even those whose budget can hardly cope with a rise in interest rates should commit themselves for the long term, preferably for 15 years or longer. A variable interest rate is interesting when there is a foreseeable high potential for special redemption.
Foreclosures are repeatedly touted as the "golden way" to acquire real estate at a low price. The problems of foreclosure are overlooked. Good properties are usually sold before the auction date. Properties that are sold at auction are often problematic properties. Although appraisals are prepared prior to each foreclosure auction and can be viewed at the offices of the local courts, they do not provide a complete picture. Inspections are often not possible, so that the "cat in the bag" is bought at auction. This is one of the reasons why many banks refuse to finance such properties. Auctions require a lot of discipline. If more than one bidder is involved in a foreclosure sale, bids are sometimes submitted that are higher than the value of the property. For the layman it is difficult to see who is bidding or who is just trying to drive up the price. There are no long consideration periods at an auction. Therefore, everyone should set a limit in a foreclosure sale.
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