Anyone who currently wants to buy a house or finance a property can currently enjoy the favorable mortgage rates for real estate financing. Construction interest rates have already been at an extremely low level for several years – this is of course a great advantage for borrowers in particular.
However, even if low interest rates for a mortgage mean that the burden per month is rather low in comparison and that one has more money available for living, there are still some risks and dangers on the other side that can go hand in hand with the construction interest rates.
Most of the time, borrowers cannot recognize these dangers directly at first glance – they have to look more closely at the subject in order to be able to assess and weigh up the possible risks.
The problem: mortgage rates can only be fixed for a limited period of time
If borrowers decide to take out real estate financing at the current low mortgage rates and can only just afford to pay the installments, the first danger already lurks. That's because interest rates by no means stay at that level for the life of the loan. If a rate of 600 euros is chosen when only 700 euros of disposable income is available, it is called narrow financing. With a term of the loan over 25 years, a fixed interest rate can usually only be fixed for a maximum of 15 years. After the 15 years, the interest rate can then rise significantly. While this does not have to be the case, the option exists in any case.
Given the current low interest rates in particular, it is highly likely that interest rates will return to a (possibly significantly) higher level in the future. In the case of tight financing, there is the problem that the installment increases sharply after the expiration of the 15-year fixed interest rate and may no longer be bearable.
The solution: secure low mortgage rates for a long period of time
The only sensible and safe solution is to lock in the low mortgage rates for as long a period as possible. At the same time, there are also other options to minimize the risk described above. To this end, first of all, it is advisable not to make a hasty decision to buy real estate or start a construction project. The associated construction financing should be well considered. Even though the low interest rates are currently tempting.
Sufficient financial leeway should always be kept in mind, so that in the future – when the fixed interest period has expired – possible higher installments can be paid without any problems. On the other hand, borrowers can try to secure the low mortgage interest rates for a maximum period of time. Many banks now offer fixed interest rates not only for five or ten years, but also for longer periods – sometimes even for the entire term of the loan. In the course of a full amortization loan, for example, this may be the case. With a loan of this type, the entire term of the loan is identical to the duration of the fixed interest rate period. For the borrower, there is thus no longer any risk of possible interest rate changes.
Note: Calculate the income and expenses as a basis
If you want to determine whether the current low interest rates on a mortgage do not pose an increased risk in an individual case, if interest rates were to change in the near future, you can perform an income and expenditure calculation. The aim of this calculation is to calculate the freely available income and thus to get an overview. The available income must be at least equal to the amount of the planned installment for the loan. For the income and expenditure calculation, one adds all monthly income – the salary in the first place – and subtracts from it all monthly expenses. This usually includes the cost of insurance, electricity, gas, water and living expenses. Expert advice states that the installment for the real estate loan should not exceed 70 percent of the disposable income in the end. This leaves a margin for later interest rate increases.