For most people, owning a home is the biggest investment in life – experts recommend that you plan your financing carefully. In practice, time is often of the essence: when viewing, prospective buyers trample each other’s feet, and properties are often even auctioned according to the “who offers more” procedure. If you don’t access it in time, you run the risk of losing your dream home. That is why many future owners sign their loan agreement sooner rather than later and then grapple with the consequences for decades. Four Costly Mistakes – And How Borrowers Avoid Them.
# 1 Trust the house bank
Regardless of whether it is a cell phone tariff or an electricity provider: Most Germans would never even think of signing a contract without first obtaining several offers. It is different with mortgage lending. There, buyers and builders still prefer to rely on their bank advisor – and leave a lot of money behind. On average, customers in Germany currently pay 0.79 percent per year for annuity loans with a term of ten years, shows the construction money index of the comparison platform Biallo.de. The top providers offer loans with a ten-year fixed interest rate from 0.35 percent per year. At first glance, the difference seems small, but for sums of 200,000 euros and more, it can quickly make a difference of tens of thousands of euros.
# 2 Underestimate the cost
Some financing plans are doomed to failure from the start because they don’t take into account all of the costs of building or buying the dream home. The mere purchase price is not enough. On top of that there are at least the fees for notaries and brokers, the real estate transfer tax and the costs for the entry in the land register. These standard ancillary costs alone add up to 15 percent of the purchase price. Borrowers should also plan sufficient buffers for the unforeseen – for example renovation work before moving in. Experts advise adding at least ten percent of the total for such unpleasant surprises.
# 3 Set repayment too low
The most popular form of construction financing in this country is the annuity loan. The monthly installment consists of repayment and interest. It remains the same over the entire term and thus enables borrowers a high degree of predictability. Due to the historically low interest rate level, many banks are now only demanding very low loan installments from their customers. The crux of the matter: With low monthly payments, the repayment takes an extremely long time if borrowers do not actively take countermeasures. Basically, the lower the initial repayment, the longer the term and the later the borrower will be debt-free. When interest rates are low, owners should therefore repay as much as possible – but at least two percent.
# 4 Fixed interest rates too short
At first glance, a short fixed interest rate may seem attractive, as it ultimately lowers the interest rate that the buyer pays on the loan. The calculation only works if borrowers either pay off the loan in full within the deadline – or if interest rates remain low. If the interest rate increases significantly after the deadline, it can be expensive. Experts therefore advise borrowers to secure favorable terms for as long as possible. Although this costs a small premium, it saves owners from having to throw their financial planning overboard because the interest rate has doubled in the meantime.
Real estate compass
Current Real estate prices and detailed maps for all residential areas in Germany can be found in Personal-Financial.com real estate compass: immobilien-kompass.Personal-Financial.com