The more equity, the lower the risks
Anyone who uses little or no equity pays higher interest rates, tends to take longer to pay off debts and carries the risk that the bottom line will be debt if they sell early. If the 20 percent of the total costs often required by banks are paid from your own funds, the proceeds from the sale will in most cases be sufficient to pay off the debt in full.
For the Equity capital Incidentally, they all belong too Savings contracts for retirement provision such as pension and capital life insurance and other investments. If you don't use it as equity, you have to take out more credit and take longer to repay it. If you have a significant amount invested in opportunity-oriented investments, such as ETFs, then you are essentially investing “on credit”.
This speculation is risky because in the past there have been phases of 10-15 years without any significant returns on the stock market. Then you will not achieve any return and will be stuck with the interest costs you have paid. It often makes sense to terminate the savings contracts, use the credit to reduce the loan and use the savings rate for repayment.
However, bank advisors, credit brokers and financial advisors do not always provide advice in this sense. On the one hand, the higher the loan amount, the greater the bank's interest profit, and on the other hand, commissions often flow to the brokers from the existing investment contracts. In any case, keep some financial flexibility so that you can always have sufficient reserves for unforeseen expenses.
Complete total cost of purchasing the property
The Incidental acquisition costs How Real estate transfer tax, land register and notary costs as well as broker commissioncan already make up 10 percent of the purchase price. Calculate all necessary costs, including smaller furniture, lights or expenses for the new garden or balcony. Even if the family organizes the move themselves, there are often still some expenses.
Additional expenses may arise for new buildings if, for example, the subsurface has surprises in store or if special requests – from the number of sockets to the type of parquet to be laid – are to be fulfilled for an additional charge instead of the standard services in the building description. In addition, prices have recently risen sharply across the board, a number of building materials are no longer available as quickly as usual and long waiting times for craftsmen can delay the construction project.
Please note that credit institutions charge so-called commitment interest after a certain period of time, usually after 3 to 12 months. This is a fee that you have to pay for the loan if it has not yet been paid out. The bank is then not allowed to charge the loan interest and therefore collects commitment interest. Negotiate the interest-free period and calculate the total costs carefully. Always allow for a buffer.
Otherwise there is a risk that you will need further financing. This so-called additional financing can be expensive or even rejected. If you have included too much buffer, it is best to use the excess amount directly for a special repayment.
Which form of financing is suitable?
If you know the possible loan installment that you can bear permanently and have also determined when you want to be debt-free at the latest, you can calculate the maximum loan amount for a given interest rate level.
Example: If the loan is to be repaid after 15 years with a monthly installment of 1,300 euros and an interest rate of 3 percent, it must not be higher than 188,241 euros. You can find helpful calculators for this at Stiftung Warentest, for example.
A simple annuity loan like the one in the example here is usually the best form of financing. The length of the fixed interest rate depends on how quickly the loan is repaid and whether you are prepared to pay the associated price in the form of higher interest rates for longer interest rate security.
You should also agree on annual special repayment rights. You can now get this free of charge almost everywhere, amounting to 5 – 10 percent of the loan amount annually, if you ask.
It is also practical if you have the right to change the repayment rate. Depending on your financial situation, you can then repay between one or 10 percent of the loan amount each month.
Not all banks offer this additional flexibility, and you can easily do without it if high annual special repayment rights are granted instead. Consumer advice centers advise against combining interim financing with life insurance or investment funds. These variants are often more expensive or too inflexible, sometimes even very risky. Consumer advice centers also take a critical view of combinations with building savings contracts. You can find out more about this in the section “What to think about instant building savings financing?”
