Written by Olaf Varlemann – Managing Director Baufi-Nord GmbH.
The sharp rise in interest rates in recent months has caused many to shelve their plans to own their own house or apartment for the time being. Often there is actually no reason for total resignation. With the right financing concept, home ownership is still affordable. Who wants to wait nevertheless or must, can use the time and let work for itself!
Who wanted to finance a property until the end of last year, had it easy. In most cases, you could lock in financing for 20-30 years (best with a sog. Full repayment loan). The monthly installments were affordable thanks to low interest rates and you had peace of mind for years or even until the end. With this, you could not go too far wrong on the customer and advisor side. Home ownership was so for many – also sog. Normal earner- affordable in the long run.
In the meantime the situation has turned around. The combination from strongly risen interest and still high purchase prices, makes many building and prospective buyers up-to-date a line by the calculation. With the past standard solutions one does not come any longer far. Instead, individual financing concepts are again in demand, with which you can adapt the installment burden to your personal requirements.
What options are there for reducing financing rates?
The rates for a real estate loan consist of interest and amortization. Logically! If you want to lower the rates, you need to save on the interest rate and or on the amortization.
How to save interest!
The level of interest rates depends mainly on 2 factors:
- the loan-to-value ratio (the ratio of the loan to the value of the property)
- the duration of the fixed interest rate period (fixed borrowing rate)
Of course, you can reduce the loan-to-value ratio by simply using more equity and taking out fewer loans. But from the point of view of the bank(s) you can also reduce the loan-to-value ratio in another way. In the first step, the sog. Increase the mortgage lending value. This is the value that banks apply when calculating the interest rate. This has with the purchase price or. actual market value does not necessarily have anything to do.
In the next step you can split the financing. This means that you do not finance everything with one bank, but finance a partial amount through a second bank. It is important that the second bank either does not require "real security" (i.e. land charges) or is willing to be registered in the land register in the second place. The latter is especially common for subsidized loans from the federal states. The bank, which finances the main part, treats such loans quasi like equity capital. As a result, it charges less interest on its own loan. The whole is worthwhile itself if necessary. even if you are to pay significantly higher interest for the second loan. It is just a question of the right mixture.
You can also save interest with the duration of the fixed interest rate. This works quite simply, in that you do not fix your loan – as usual up to now – for 20 or more years, but only for 10 years. However, this only makes sense if you combine the loan with a building savings contract. Such combination loans were usually not a good choice in the low-interest phase. However, this has now completely turned around, because the interest rates for building society loans are currently significantly lower than the interest rates for bank loans. This is a situation that we have not had for a long time. Those who, like me, see building savings rather critically, must currently rethink and approach the subject without prejudice.
When it comes to building savings, it is very important to choose the right building society and the right building savings tariff. The large and well-known through advertising building societies such as Schwabisch-Hall, Wustenrot or the Landesbausparkassen (LBS) are usually not the first choice. There are other offerers, who offer clearly more interesting basic conditions.
This is how you save on repayment!
Saving on repayment always means that the term of the financing is extended. In this respect, you should think carefully about whether to reduce the repayment to the absolute minimum. Many banks still require a minimum repayment of 2% annually, but the first have already reduced this minimum repayment rate to 1%.
A low fixed repayment rate can be useful if you want to be flexible in repaying the loan or want to reduce the initial burden first (z.B. due to child-rearing periods). It is then important that the financing bank is also flexible and accepts unscheduled repayments or redemption rate changes. You should keep in mind that what you save on repayments at the beginning, you will have to make up later, so that you don't have to pay loan installments forever and three days later.
Very important: the combination of short interest rate lock-in (10 years) and permanently lowest possible redemption rate (1%) is a ticking time bomb (especially for high loan-to-value ratios). Interest rates do not even have to rise further in the course of the next 10 years. It is also enough, for example, if the bank finds out during the follow-up financing that the property no longer has the originally assessed value and requires additional collateral or you are to repay a larger part immediately.
Wait and see?
As a native of East Frisia, I am naturally a fan of drinking tea. But when it comes to buying real estate, pure wait-and-see isn't so hot right now. Anyone planning to buy or build a property in the near future now has the chance to secure favorable interest rates for their financing!
Here, too, the topic of building savings plays an important role, because this is the instrument with which you, as a consumer, can secure interest rates for the future that are lower than the current mortgage rates of the banks. At the risk of sounding a bit dramatic, this is a de facto historic opportunity that won't be coming back anytime soon. Reason: building societies are also likely to raise their interest rates in the course of the year. Good for pure savers, bad for those who want to finance later.
But not all home savings are the same!
Many believe that there are no significant differences between building societies and building society rates. It's all one-size-fits-all? No way! There are sky-high differences between building societies and their rates, which determine whether it's worth it or not. And: the lowest bauspar interest rate, is usually even the worst solution!
Also with the sog. "Pension building savings" we very often rely on the rather smaller building societies. These usually have more flexible rates with, for example, lower fees than the large and well-known building societies. But: we are not married to any building society and will find the best offer for you.
Simply schedule a consultation and get informed!
Knowledge only hurts those who have none! Simply arrange a consultation appointment at one of our partner offices in your area or an online consultation appointment. This costs you nothing and commits you to nothing!