Would you like to take out a loan with the property as security? For sale? For modernization and renovation or for other reasons?
We present the loan with real estate security as an all-rounder for financing requests. Find out what you should pay attention to when financing your property purchase, which loans finance the modernization at low interest. Finally, we turn to refinance.
Credit with the property as security – property purchase
Credit with real estate as collateral becomes an issue for the first time when people buy or build existing real estate. Without a loan, “normal” citizens cannot create home ownership. In contrast to ordinary consumer loans, the real estate loan is not an investment in a “flash of the pan”. A value is created that provides security for the rest of life.
Large loan volumes are financed for this, which are repaid in installments over many years, often even decades. There is weak demand for public promotional loans to buy real estate so that people with lower incomes can realize their dream of owning a home. Only with loan 124, the rather modest amount of 50,000 USD, does the state support the purchase of real estate or the construction of the residential property.
The interest rate is interesting for that. The money would currently be approved with a term of 4 to 25 years at an effective annual interest rate of 0.75 percent. The loan with the property as collateral from cream bank offers fixed interest rates for 10 years. The loan is secured in the land register. The loan would not be applied for directly from cream bank, but through a commercial bank. This bank takes over the entire credit processing.
Low Interest Rates – Real Estate Acquisition Risks
The low key interest rates have triggered a real property boom in Germany. Financial experts are already warning of a bubble in the real estate market. Calculated with the sharp pencil, it is even mathematically possible at the current interest rates to become the owner without equity. Apparently clever brokers know ways to generate equity statements out of “nothing”.
But be warned against such practices. Financing models that are not backed by sufficient equity are on a solid footing. Low interest rate phases pass. It is more than doubtful whether the property can be sold to compensate for debts if interest rates rise. With rising interest rates, which could collapse financing in the medium term, demand is reduced at the same time.
A loan with the property as collateral for purchase is financed in a healthy manner if there is at least 20 percent real equity. The purchase would be optimally financed if no more than 60 percent of the purchase price and all ancillary costs were financed through loans. With such a high proportion of existing equity, the interest claims of the mortgage lenders also disappear.
What to look for – interest rate or fixed rate
Real estate finance is always a long-term affair. Of course, low interest rates are one of the building blocks of healthy financing. The repayment portion of the installment payment should, if possible, always make up more than 1% percent. But cheaply financed and amortized sufficiently isn’t all that property buyers have to look out for. It is at least as important to be able to afford one’s own home even in possible high-interest phases.
Financing at a higher interest rate, but with fixed interest rates of 20 years or 30 years, creates payment security. The rate level should also take into account that life does not only have good sides. Financial lows can hit anyone. At this moment, the installment payment must continue to be made. Optimal financing is given at low current rates with additional annual voluntary special repayments.
Energy efficient renovation – modernization loans
Houses are extremely long-lived if they wait for the owners on time and regularly. At the same time, every house can be renovated and modernized today so that energy costs drop drastically. The suitable loan with the property as security comes from cream bank for most renovation projects on existing properties. Credit 151/152 – energy-efficient renovation would be particularly interesting.
the cream bank provides up to $ 100,000 credit per residential unit or up to $ 50,000 for individual measures. A publicly-funded modernization and renovation loan would currently be approved at an effective annual interest rate of 0.75 percent. The fixed interest rate would again be possible for 10 years. For many, however, the repayment subsidy is more interesting than interest. Through the grant program 430, the state participates with a grant of up to 30,000 USD.
The cream bank loan is not worthwhile for smaller loans with the property as security, for example for the renovation of an outer wall. Too much bureaucracy would have to be overcome. Most commercial banks also react negatively to smaller financing projects as loan processors of public promotional loans. Modernization loans without a land register would be more interesting for smaller loan requests.
Real estate loan – refinancing instead of investment backlog
In the first few years after buying a property, most home builders and existing property buyers are heavily in debt. If the initial financing was calculated too tightly, there is a risk of investment backlog. Credit institutions are happy to grant a loan with the property as security if they are in a privileged position in the land register. With the request for refinancing, only a place under “also ran” in the land register can be offered.
Nevertheless, some projects, such as roof renovation, cannot be postponed. In this case, contact persons for the loan with the property as collateral could be traditional credit intermediaries. Another serious alternative would be, for example, a loan from Astro Finance.