A property loan for the new home?

Who doesn't dream of the own home? In most cases, households can only fulfil this wish for a high purchase price by taking out a loan for a property. Because financing the purchase or construction of an apartment or house is a long-term matter, a few things should be considered beforehand.

A wrong decision when choosing the right property loan can cost a lot of money. To take out a loan for a property, future homeowners should compare offers, because the differences are considerable.

What to consider for a property loan?

As already mentioned, a loan for a property is a long-term matter. Initial terms of 15 years are not uncommon for larger loan amounts. That also means that the interest rate for a property loan is fixed for that period. During a fixed-rate period, interest rate decreases and increases are not taken into account. A fixed-rate period can therefore be advantageous if the monthly interest rate could otherwise adjust to market developments and rise. Comparing the nominal interest rate (Sollzins) among different lenders is therefore very important. The interest rate is always given as a percentage.

You should also look at the annual interest rate. This indicates the annual total costs of the loan for the borrower. The annual interest rate relates to the entire loan amount as well as the full term of the loan. The annual interest rate makes it easier to compare different lenders.

Long-term planning security is only advantageous if interest rates are low. In addition, the offers for a property loan from individual banks should be checked carefully, because the differences in conditions are often enormous. A comparison is worthwhile for that reason alone.

Follow-up financing for a property loan

After the first term ends, a follow-up financing usually takes place. No bank is willing to offer a very long-term financing, for example for 20 years. However, follow-up financing for the remaining debt does not have to be taken out with the same bank that provided the initial property loan.

In this case as well, several offers should be obtained again, to find the cheapest one. The savings could, for example, be used to increase the repayment rate. That would mean not only cheap financing, but also faster repayment.

After the fixed-rate period of a property loan ends, borrowers receive offers from their previous bank for follow-up financing. It is not uncommon for homeowners to accept immediately, without first informing themselves about current interest rates.

That is careless, because in the meantime interest rates have generally changed and often it is only convenience that leads people to accept the offer from their previous bank immediately. This does not necessarily mean that the offer for a property loan is actually worse, but only a direct comparison makes that clear.

Property loan without equity

As a rule, banks require a certain amount of the borrower's own equity for property financing. But not everyone has had the opportunity over the years to build up the corresponding reserves. More and more lending institutions now also offer a loan for property or construction financing without equity.

There is nothing to object to these offers. However, borrowers should be aware that the term in such cases is usually significantly longer. In addition, higher interest rates are to be expected.

Self-analysis to determine financial resources

Before deciding on a loan for a property, you should first check your own financial leeway. With a loan for a property, the money is tied up for years. In addition, unexpected events can occur that make it difficult to pay the installments on time.

Those who have reserves are better protected. Such reserves could be deposits in instant access savings or fixed-term deposit accounts. A life insurance policy is also a good safeguard.

By buying or building a property, you become independent from landlords and high ancillary costs. Families with children in particular benefit from this, because they have space and can develop freely. But you should also keep in mind that repairs may be necessary, which a landlord would otherwise take care of in a rental apartment.

As an owner, you must pay for these yourself. These costs should be taken into account by the borrower when considering a loan for a property.

If you choose short terms with higher repayments for a property loan, there may be no money left for reserves in the end. It is therefore more sensible to opt for lower installments with a longer term in order to be able to set some money aside. After all, you do not want to apply for another loan for this purpose. Whether such a loan would even be approved under such a high financial burden is questionable.