Risk of too low mortgage financing
Risk with suspiciously cheap mortgages
As it is colloquially called, the interest rates on real estate financing since the beginning of 2013 in a long-lasting historical low. It is therefore more than tempting to consider exchanging the monthly rental payment in the high three-digit euro area against mortgage lending with interest and repayment. Construction money is cheap, say some and immediately add: who does not dare, who does not win. Or vice versa: Only those who dare win.
Thinking about the future at home construction and home purchase
Any real estate financing is a financial commitment for several decades. During this time a lot can happen in every way. So it is also expected that the interest rates will rise again. No one knows from when, and no one can estimate, in respectively up to what height. Anyone who uses the opportunity to finance their property must definitely avoid it. The builder or buyer must be able to serve his building loan on time and fully in two decades with the expected higher interest rates.
Balance between high repayment and long fixed interest rate
In these weeks and months, the mortgage lending becomes a sophisticated arithmetic example. The client should in all circumstances obtain several offers and seek advice from financial institutions. He needs to know that each one of them wants to do the construction finance business. Each bank and savings bank is mindful of its own benefit, because it has to generate revenue and profits with mortgage lending. Against this background, the client should understand, calculate, compare and then decide for themselves on every financing offer. The savings in current low interest rates must be used for increased eradication. The lower the residual debt, the lower the future interest rates. These in turn depend on the interest rate commitment of the first financing phase. If it is unusually long, for example fifteen or twenty years, the effective interest rate increases. This diminishes the free tip for a higher eradication.
Today’s monthly rate must be permanently affordable
The client is then on the safe side, if he can pay until the final installment, the consistently equal monthly payments. This should, despite the low interest rates, disproportionately high, in favor of eradication. Over the course of the financing period, when interest rates rise, repayments can be reduced without jeopardizing overall financing. All four basic arithmetic operations are required here, whereby some Excel spreadsheets on the home PC are a valuable support. You can also make an up – to-date loan comparison for your mortgage lending right here at financial experts.