What is real estate financing?

Many people associate real estate financing with loans for houses and plots, not with the purchase of a condominium. In fact, detached houses are significantly more popular. A usually slightly cheaper alternative would be a semi-detached house. However, if not only greater privacy is important but primarily a good investment in the future, a condominium should also be considered. In addition to conventional financing via a loan, a rent-to-own arrangement can sometimes be an option.

Financing is also conceivable without a loan using only equity. However, this is only possible for a very small portion of the population. The more relevant question is therefore which loan should be taken out with which repayment schedule and on what terms. This consideration is especially relevant for construction financing or financing the purchase of a property, because these involve large sums and, as a rule, terms of many years.

In real estate financing, equity plays a major role. The more you have "in reserve," the smaller the loan volume you need to take out. Most people prefer the building savings contract (Bausparvertrag): agreed amounts are paid in regularly over a certain period, these are interest-bearing, and after the building savings contract matures the saver has the right to a low-interest loan.

Banks offer different models for real estate financing: either lower-interest models with faster principal repayment or, for example, longer instalment payments at higher interest. Here, too, it is advisable to look closely at the offers and not let a bank advisor push you into a particular option.

It is also important to obtain comparisons from other banks in order to make a better decision. There is a wide range of real estate financing offers on the market, both traditional and online. Corresponding calculation models available on the Internet can provide additional clarity.

Tips for comparing real estate financing

Many calculators are offered online to calculate a loan for financing a property. Depending on the complexity of the calculator, you can choose only the amount and term or additional factors such as the fixed-interest period and the repayment rate.

These calculators can provide an initial impression, but they only offer guideline values. They usually calculate with an average or even particularly low interest rate. Definitive clarity and binding offers are only available after an inquiry that takes your personal situation into account. Existing equity and the creditworthiness of the applicant(s) are decisive here.

The same applies to comparison portals that list banks and use the entry interest rates provided by the banks. These interest rates do not yet say anything about the conditions actually offered to you. Customers can be lured by indications of low rates, while the calculation of the actual interest rate may be much stricter than at a seemingly more expensive bank.

An inquiry with a loan broker like MAXDA has the advantage that offers from a large network of banks are obtained and compared directly by the broker. This way you receive the best offer from hundreds of banks from Germany and other EU countries with just one inquiry.

It is also important that the broker is independent, so there is no influence by a particular bank and no offer is preferred. Due to its independence, a broker can also provide comprehensive advice and address all arising questions.

Important terms in real estate financing

The fixed-interest period

The nominal interest rate refers to the rate charged solely for the provision of the construction loan or mortgage. The effective annual interest rate, on the other hand, additionally takes into account all other costs charged by the lender. This interest on the loan amount is usually set for several years in real estate financing. This creates the fixed-interest period. This fixation can pose a risk for both the borrower and the lender. After all, the development of the key interest rate and thus the level of interest can only be predicted for a few years. If interest levels fall during the fixed-interest period, this would be unfortunate for the borrower. If interest levels rise, the lender misses out on income due to the fixation.

For this reason, banks tend to reward shorter fixed-interest periods with lower interest rates. After all, the level of interest always reflects the level of risk to the bank.

The annual interest rate

Annual interest rates are given in % p.a. (per annum). It is calculated from the total interest required for a loan and the loan term.

Annual interest = (total interest / loan amount) : number of years

So a single rate is not set that is then applied monthly or yearly to the remaining loan amount. Rather, from the amount that is to be paid as interest, the percentage share of the total costs is calculated. This percentage share can then be calculated per month, year, or for the entire term. The interest rate serves to compare offers.

The annuity loan

The annuity loan is the most common form of credit in real estate financing. A sum is defined that is repaid monthly. This amount remains the same over the entire term. It is also determined how large the repayment portion of the first instalment should be. At the beginning of the repayment period, a large part of the instalment covers interest and later the portion that reduces the borrowed amount increases.

Owning your own property - always desirable

A high-quality property or the renovation of a property are well-known to be good investments if you can secure a favorable real estate financing. You permanently save on rent, have your own place in old age, and if prices rise and the location is right, you can resell properties profitably.

It is no coincidence that many people strive for a house or a condominium. Therefore, real estate financing is also one of the core businesses of banks: construction happens at all times.

➤ With MAXDA construction financing even with negative Schufa you can immediately secure TOP conditions!

Before signing a real estate financing agreement, be aware that you are entering into a very long-term commitment. Income in the coming years should be as secure as possible, and the more equity you have, the better.

If possible, you should aim to own property for the reasons mentioned. It offers security, is inflation-proof – and simply feels different when you are at home in your own four walls.