Buying real estate is more attractive than ever because of the persistently low interest rates. Financing, however, is not without risk.
The real estate market has not suffered from the pandemic. On the contrary: prices continue to rise and those who can buy an apartment or build a house. This type of investment is extremely attractive due to the low interest rates. Many banks currently offer loans at an interest rate of 0.67 percent. However, such financing is not entirely without its risks. The Frankfurter Rundschau asked experts what to watch out for.
Equity: How much money real estate buyers should bring is a matter of dispute among experts. The Bausparkasse der Sparkassen, LBS, recommends 20 percent of the purchase price, for example. The financial advisor Max Herbst from FMH-Finanzberatung Frankfurt sees it differently: “I think it is sufficient that the ancillary purchase costs can be paid out of pocket – that is around ten percent of the purchase price. The purchase price can be taken out entirely as a loan, ”he says. Of course, the banks would like to see customers with a lot of equity, but around 60 percent of the banks are now financing the entire purchase price. “Real estate prices will rise faster than I can keep up with saving,” he explains. It is very difficult for a family to save a large sum, such as 80,000 euros. So buy now and pay a little higher interest.
Norman-Marcel Dietz, an expert in Hildesheim and building owner consultant in the Association of Private Builders, even knows cases in which banks financed the purchase price and ancillary costs – “if borrowers can show two fixed salaries, for example,” he says. In the corona pandemic, however, the banks have become more cautious. “Possible short-time work or unemployment can lead to the banks pushing out the financing.” He advises a personal contribution of 20 percent of the purchase price plus ancillary costs.
Your own resilience: Here Max Herbst is clear: “The burden must not exceed 35 percent of the net income,” he says. Many homebuyers made mistakes on this point. You are taking too much credit and putting yourself under too much pressure. For example, if the net income is 3150 euros, the credit charge, i.e. interest plus repayment, should not be higher than 1100 euros. It is important to build in a buffer because income levels could change. “However, many assume that everything will always remain the same as it is today.” But a job could be lost or a partner could be absent due to childcare.
Dietz knows another model for assessing one’s own resilience: “In addition to the financial burden, the running costs of living and expenses for cars, telephones and so on are also included. calculated. When everything is added up, there should be 50 percent of the family income, ”he says. This protects the borrowers even in times of crisis.
Fixed interest rate: The most common loan agreements offer a fixed interest rate over ten or 15 years. But you can also agree on a fixed interest rate over 20 or 30 years – the interest rate will then be slightly higher, but borrowers have a long-term security with regard to their burden. “If you have little equity and finance at the upper limit, you should agree to fixed interest rates with the bank for as long as possible,” says Herbst.
According to his analyzes, the effective interest rate increases from around 0.90 percent with a ten-year commitment to 1.45 percent with a 20-year commitment. With a house purchase price of EUR 400,000 and a loan of EUR 360,000, the example rate is EUR 1,165 at 0.90 percent. This would increase accordingly to just under 1325 euros. Online calculators (for example at https://www.fmh.de/eigenheim) can make the calculation easier. They also show how high the expected credit volume is given the given net income and other parameters.
Age of buyers: People of advanced age often have problems obtaining financing from banks because the financing period extends into retirement age. Herbst advises not to be discouraged. “I also have to pay rent when I retire,” he says. Therefore, buyers should work out a plan with the bank on how the loan can also be serviced in retirement age. Maybe pay off one part very quickly and one very slowly.
Dietz advises not to lose sight of follow-up financing. “It’s a common mistake,” he says. When taking out a loan, for example, a home loan and savings contract can be concluded, which fixes the follow-up financing at today’s interest rates. “Then you have a secured loan for when the first financing runs out.”
Special contractual clauses: A common topic in mortgage lending are special repayment rights. Many banks now offer this in the loan agreement at no extra charge. “If a bank charges an interest surcharge for this, you should forego the option, because special payments are seldom possible in the first ten years and are legally permitted in any amount from the eleventh year,” says Herbst.
When building a house, borrowers often have to pay commitment interest, as the loan is paid out gradually as the construction work progresses. In the first twelve months, these commitment rates should be zero, says Herbst.
Another contractual clause that he recommends is the repayment change: “It states that the repayment amount can be changed depending on the income situation.” If the income situation improves, the repayment can in most cases from two to four, even up to ten percent be increased. If it worsens, the repayment can also drop to one percent. This enables an adaptation to the living conditions, which can be very important with long contracts.
Interest rate development: According to Max Herbst, interest rates will probably rise in the near future – but only moderately. He expects an increase of 0.2 to 0.3 percent. “With a loan of 400,000 euros, this would be between 67 and 100 euros more per month,” he says.
–
