April 6, 2019

Loans: special arrangements for annuity credit

Many people dream of their own homes. However, most can not afford this out of pocket or with self-saved reserves – real estate financing with external finance is often essential.

These external funds are provided by banks or insurances through construction funds. However, there is probably the most popular alternative, is to get a real estate loan from a bank. There are basically three major types of loans: the term loan , the installment loan , and the annuity loan , better known as annuity loans.

Possibility of financing the home through bank loans

Possibility of financing the home through bank loans

The annuity loan has the great advantage that you have to pay a monthly agreed repayment amount, which consists of the repayment itself and the loan interest. Especially in real estate financing, this fixed basis for calculation is worth gold, as you usually have to bear additional costs when building or buying a house – for example, buying furniture.

Amongst other things, loans are characterized by the fact that they have a fixed term – in real estate financing usually several decades – and a contractually agreed interest rate.

Fixed interest has advantages and disadvantages

The fixed rate mortgage interest rate has both positive and negative aspects for the borrower. In times of high interest rates on the capital market, the borrower profits from his (here: lower) fixed interest rate, if this is below the general (here: high) market interest rate, since the interest rate can not also slide upwards and thus the interest payable increases would. The fixed interest rate is thus an advantage of the borrower.

On the other hand, the market interest rate can also develop quickly in opposite directions. If interest rates on the capital market fall and interest rates in the loan market for borrowers are favorable, then borrowers with an already fixed interest rate will remain stuck at the higher interest rates. Here is a fixed interest rate disadvantage for the borrower.

Secure low interest rate for the future

Secure low interest rate for the future

In principle, it is now possible to take advantage of the low market interest rates with a loan. With a loan, you can now contractually set an interest rate that you want to use for the future. For example, if you want to restructure your existing credit agreement to a cheaper bank, you can set a currently low interest rate on this and reserve for debt restructuring – even if the rescheduling is to take place in one year. The Loan thus allows you to benefit from today’s low interest rates in the future as well.



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