Equity, Monthly Debt and Amortization: Three Key Issues in Home Financing
Oberberg - Anyone who wants to build or buy a home in Oberberg and the surrounding area generally needs good mortgage lending. The own house is for most people probably the biggest issue of life. That's why it's so important to plan this investment well. Mortgage lending is often completed over decades and therefore remains a fixed expense over a long period of time. But how much capital is necessary at all? And what must be paid to the interest and repayment? A realistic financing plan will help answer that question and find out if you can afford home-buying or home-building.
A Financing Plan is All About
Before any real estate financing is completed, a financing plan should always be made. The purchase price of the property is compared with the equity. The difference between the purchase price and equity must be achieved through mortgage lending. However, it is not enough with the sole purchase price, because you should not underestimate the additional costs when buying a property. These include:
- Real estate transfer tax
- Notary and legal fees
- Brokerage commission
- Any expenditures for renovation work
Almost all federal states have raised the land transfer tax in recent years, which is why the additional costs of buying a home in Oberberg have also increased
How much equity is needed?
When it comes to how much equity is needed to buy a home or build a house, the opinions of the experts differ. It is ideal if the equity capital can cover the additional costs completely and at least 20 percent of the purchase price. However, this amount is rarely available in practice. Nonetheless, equity must necessarily cover all ancillary costs.
It should also be decided on a case-by-case basis whether high equity is required: for example, homebuyers with a steady and high income and a secure job are better off than self-employed; who are about to found their own existence. The reason: home buyers with a steady job can carry a higher monthly burden. Basically, it is not advisable to buy mortgages completely without equity: Under certain circumstances, the banks agree to such a loan, but this is associated with a greater risk for the banks, which they usually compensate by high additional interest.
Plan reasonable monthly budget
Not only the available equity is important for mortgage lending, but also the monthly burden that a homebuyer must bear in the long term. Experts recommend spending no more than 40 percent of the net income on housing. With these 40 percent, not only the monthly installments to the bank should be paid, but also the additional costs. Homeowners can expect an average of € 2.50 per square meter.
The optimal repayment
The installment, which has to be paid to the bank on a monthly basis, includes not only interest but also repayments. It ensures that the loan can be repaid in small steps. Over a long period of time, it has been customary to settle a repayment of one percent of the total loan amount. However, due to the current low interest rates, it is possible to pay higher redemption rates because less money has to be raised for interest. A higher repayment has the advantage that the debt is paid faster and the overall interest charge decreases.
By comparison, a homebuyer buys a loan of 100,000 euros at a borrowing rate of two percent and sets a repayment installment of one percent , so he pays 250 euros per month. But he will only be debt free after around 55 years and pay interest of 65,000 euros. If, on the other hand, he chooses a repayment of three percent, he has to pay a monthly installment of over 400 euros, but after only about 25 years he can claim to live in his own home. The interest costs are then significantly lower with only 28,000 euros. An amortization calculator can be of great help in determining optimal amortization.
Mortgage repayment with variable repayment, special repayments and combi-loans
There is also the option to conclude mortgage loans with a variable repayment or a combined loan. The redemption rate may then be changed several times within the fixed interest period. BKM explains: "The part-flexible loan has a fixed interest component and a part which flexibly follows the development of mortgage rates on the capital market. This portion of the loan can be repaid in full or in part at any time with a special payment. This is how the borrower benefits when mortgage rates should go down. If they climb, they have the option of special repayment. & Ldquo; Variable and special repayments are also useful if, for example, one of the main earners suddenly loses the job or is due for a baby break. Special repayments are also possible to pay off the loan faster. For example, they can be made according to an inheritance. However, mortgage lending, which allows a special repayment possibility, more expensive than normal fixed-rate loans. They are worthwhile only if there is a real prospect of special repayment.
Which bank is the right one for mortgage lending?
An important point in choosing mortgage lending is choosing the right lending institution. Well, one is usually advised by a building society, which has put its emphasis on mortgage lending. This applies, for example, to Bausparkasse Mainz (accessible at www.bkm.de). It offers individual mortgage lending with fair conditions and fixed interest rates, which can be adjusted to personal life planning.
Artikelbild: © kazoka / Shutterstock