The construction loan

House building

Various factors determine the amount of the building loan. Professional advice is very important. Not only the interest rate and the additional costs determine the amount but also the repayment amount of the loan.

The right repayment

The repayment rate, which was agreed in advance, has an impact on the period of repayment and thus on the cost of the loan. The faster the builder repays the loan, the lower the loan term and the fewer years of interest he has to pay.

For example, it takes 38 years to repay a 100.000 euro loan with an initial repayment of one percent and a nominal interest rate of 4.5 percent. If the borrower were to opt for a repayment rate of 3 percent instead, he would be debt-free after just 20 years and would have saved a few thousand euros on interest at the same time.

Further advantage

With a higher initial repayment, the residual debt is lower after the fixed-interest period has elapsed. If the interest period is very low at the moment, this is excellent for the borrower. If interest rates increase after the financing, this can lead to an increase in future installments. Due to the low residual debt, they can then but still be managed.

For this reason, the issue of repayment should be addressed prior to financing, and the borrower should also consider the correct repayment rate at the same time. This is particularly important for home financiers who decide to finance a property late in life, for example at age 40. If the borrower then has less money during the retirement phase than during his working years, which is normal, the construction loan must then be structured so that, if possible, it is paid off by the time retirement begins.

Extension of the term

Low repayment rates reduce the term considerably. In times of low interest rates, a fixed-interest period of at least 15 years should therefore be agreed with a repayment rate of more than one percent. For the borrower this surcharge, which concerns the interest rate security, is not so much in a low interest rate phase.

Whether it is 1.5 percent, 2 percent or 2.4 percent, of the amortization rate, ultimately depends on the personal and financial circumstances of the builder or property buyer. Under no circumstances should these be so high that the standard of living to which the borrower is accustomed does not begin to waver and the money is not available for unforeseen expenses.

Changing the repayment amount

Meanwhile, changing the repayment amount during the term is no longer a problem. Banks typically offer repayment rates of 1 percent of the loan amount at the outset. But with many institutions, borrowers also have the option to vary the repayment rate they pay on a regular basis, choosing, for example, from a repayment rate of one to ten percent. There are banks that also offer a certain number of conversions throughout the fixed-interest period at no extra charge. Others againrum make it for them possible by a certain fee, conversions in unlimited quantity.

The borrower should always keep an eye on the repayment rate, both at the beginning and in follow-up financing. The bank often offers the same repayment rate for the loan in succession as it did during the fixed-interest period. These standardized condition adjustments do not take into account that the borrower's personal and financial circumstances may also have changed in the meantime and that he or she may also be able to repay at a higher rate.