Provide for old age and benefit today: With the current low interest rates, it actually makes sense to think about buying an owner-occupied property – often you don't have to transfer more money monthly to your bank for the purchase than to your landlord. However, buying real estate also has risks and should be well considered. You can find an overview of relevant aspects here. If you have decided to invest, the second step is to put the financing on a secure footing.
How do I get the most favorable interest rate?
An interest rate of less than one percent? Sounds tempting! But don't count on being able to finance your property at that rate either. Because how expensive it will be in the end depends on several criteria. In addition to the term and the amount of equity you bring with you, your so-called credit rating also counts. The financing banks check how solvent you are. After all, they also want to see their money back. The more uncertainly the credit granting appears to the banks, the worse the conditions. As a civil servant teacher with a secure income, you will probably be offered better conditions than, for example, as a freelance graphic designer or journalist – unless, as a freelancer, you have a small fortune or other collateral up your sleeve.
You can find an initial overview of the conditions at specialized portals such as bauzinsenaktuell.de/bauzinsen-vergleich/ or www.building interest.org. The interest rate for which you can finance depends not only on your creditworthiness, but also on your equity and the term you choose. The rule of thumb: The more equity and the shorter the financing, the more favorable the loan. In the portals you can playfully get an overview by entering different data. You will quickly see how interest rates or monthly installments change if you vary the term or/ and equity contribution. Try it out! This will give you a sense of how the different sizes interact.
Longer or shorter terms of financing?
If you finance a property, you usually need so much money that repayment is not possible in a few years. Financing over five years therefore hardly makes sense, and even with a ten-year term there is a risk that you will not be able to handle the follow-up financing. If the property can only be financed at a significantly higher interest rate, the monthly installment can quickly double. Check therefore exactly how much residual debt remains after expiration. Could you also finance the residual debt if the interest rates have then shot up properly?
Longer terms offer more planning security. It could be worthwhile to bet on long fixed interest periods, even if you have to pay a small interest surcharge for the security. You can also split the loan amount into several tranches – for example, into a short-term loan at top conditions and a long-term loan for calculation security. Short terms for the entire loan amount are only recommended if you can afford to repay quickly – for example, at four percent plus a possible unscheduled repayment of five percent per year.
How much equity do I need??
Financing without equity capital is nowadays only possible in exceptional cases – and for you as a buyer also not recommendable. If you have less than 20 percent equity, it will be expensive. 30 to 40 percent equity is ideal to obtain favorable financing conditions. But be careful: The share does not only refer to the purchase price of the property. Incidental purchase costs such as commission, land transfer tax, land registry entry, notary, etc. can add up to 15 percent of the purchase price. The property for 250.000 including incidental costs will then cost 287.500 euros – the required equity capital of 20 percent is thus increased from 50.000 at 57.500 euros. Be sure to plan for this!
Don't let low interest rates and low monthly payments tempt you into short interest rate lock-ins! Loans with long terms are somewhat more expensive, but they offer a higher degree of calculation security. Always check how much residual debt remains after the fixed interest rate expires. Could you finance them even if interest rates rise significantly? And don't panic if you still lack the necessary equity capital today: You can secure the current favorable interest conditions by means of Wohn-Riester or also by means of a building society savings contract. How that goes and which promotion possibilities there are, read soon here on herMoney.