Mortgage loans play a crucial role in financing a property. This particular use implies that such loans are subject to entirely different rules than normal consumer loans.
What is a mortgage loan?
The most significant difference between a mortgage loan and a normal personal loan is that in the former a mortgage serves as collateral for the loan. The lender is granted a lien on the property lent or on a pledged property. Another difference is the usually much longer duration. Typical for mortgage loans is a fixed interest period of about ten to 15 years. After this term, the loan is usually not fully repaid, which is why a follow-up financing or a forward loan is needed.
With our mortgage calculator you can determine the monthly rates of mortgage loans offered by various banks and intermediaries based on working day updated conditions. You can set all the relevant parameters for a mortgage loan – from the initial repayment to the interest rate, the mortgage lending, to the desired rate of request.
Conditions for mortgage loans in comparison
Basically, the same conditions apply to the terms as to the terms of other loans: the lower the risk for the lender, the lower the interest rates. However, the risk assessment of a mortgage loan is based on different criteria than is the case for a consumer loan with a lower maturity.
First, the risk depends crucially on the existing equity. If you have a lot of equity capital and therefore need to lend the property no more than 60% of the market value, you can count on very favorable conditions.
Usually, a financing of up to 80 percent of the real estate value is possible, sometimes even 90 percent. However, this has a negative effect on the loan conditions. The lowest interest rates are available at 60 percent mortgage. With our calculator for mortgage loans, you can compare the lightning fast: simply under “Mortgage” select different values and compare the resulting mortgage rates:
The question of the creditworthiness of a borrower
The creditworthiness of the debtor also plays an important role in determining the interest rate. Once again, the long duration of a mortgage loan means that other credit rating criteria are used.
Long-term security, such as employment as a civil servant or long-serving employee, is weighted more heavily than short-term loans.
This is also evident, for example, from the fact that calculates a special sector score for mortgage loans. The creditworthiness of a customer can therefore be assessed quite differently for mortgage loans than for consumer loans.
The current interest rate level
A brief note on the general level of interest rates on mortgage loans: If the debtor’s creditworthiness is carefully assessed, mortgage lending is a relatively safe investment from the point of view of lenders. Banks often use mortgage loans as a way to safely park their capital, especially in times of crisis.
As a result of the sovereign debt crisis in Greece and other European countries, mortgage loans with good credit ratings are sometimes granted on terms that offer the bank little more than a cost and inflation adjustment. Essentially, this is because, from a banking perspective, a mortgage loan is now considered safer than some government bonds, so more funds are available.
Pay the mortgage loan charges!
The annual percentage rate already includes most of the incidental credit costs, but not all. Some banks charge fees for determining the value of the property. Incidentally, this generally applies to loans: if a security is lodged, the costs for determining the value of the security are not included in the annual percentage rate of charge.
Furthermore, provisioning costs may be incurred for the time between the loan commitment and the loan payment. Especially in new buildings, this period can be quite long.
What is the mortgage loan still to think about?
Here are some key points to help you when you are considering taking out a mortgage loan.
Sale despite mortgage
A real estate financing is a long-term decision that can be revised later only with great effort and usually with financial losses. The fundamental difficulty is that the lien granted to the lender makes the sale of the real estate much more difficult if the personal income situation changes.
Am I trapped in the contract for long interest rates?
No, you are not. Even if no bank mentions this on its own, but also with long-term fixed interest rates you have a proper right of termination according to BGB §489 (1), 2 and can terminate the contract after 10 years with a notice period of 6 months. Even a prepayment penalty will not be due.
What is a prepayment penalty?
They conclude a long-term financing agreement with the bank. The bank earns interest, which is actually nothing more than a fee for borrowing the money. The bank expects this income. These internal calculations have far-reaching consequences and affect many bank-internal processes.
If you want to terminate the loan agreement early, the bank escapes money, with which you have firmly counted. This loss can be paid by the prepayment penalty.
What happens at the end of the fixed interest rate?
It should also be noted that at the end of the fixed interest rate usually follow-up financing is required at the then applicable interest conditions. Here, a safety buffer should be included in the calculation.
How do I protect my family?
It may also make sense to provide the family with term life insurance so that in the worst case, they do not lose their home.
What happens with unemployment / Hartz IV?
Should the borrower become temporarily unemployed at some point during the long term of the mortgage, the consequences are less dramatic than is usually feared. Even in the worst case scenario, for example if a freelancer is temporarily dependent on ABC II (“Half IV”) because of the non-existent entitlement to unemployment benefits, the financing concept does not necessarily collapse.
Instead of the usual rent, the service provider normally assumes the interest portion of the installments due during this time, which significantly reduces the burden. As long as it is only a temporary bottleneck, solutions can usually be found together with the bank.
Request a free quotation for individual mortgage lending
As every home loan should be tailored to your needs, we recommend that you consult an expert when planning the financing. Using the form below, you can request a free and non-binding financing consultation and a corresponding offer from AG, one of the leading mortgage loan intermediaries in Germany: