Importance of real estate loans
According to the German Bundesbank, the German market for real estate loans to private households has a total volume of 10 1044 billion, most of which is accounted for by fixed-interest loans with a maturity of more than five years. The volume of loans used for new and follow-up financing amounted to just under 204204 billion in 2014. Thus, real estate loans are not surprisingly the most important macroeconomic financing method used by private households. Both inventory volume and new business are orders of magnitude higher than that of installment loans without real estate collateral.
Delimitation of mortgage and mortgage
Mortgage loans and mortgage loans are similar, but by no means congruent. The mortgage is defined in 1113 BGB and describes a right from a property that is inextricably linked to a specific (!) Monetary claim. A land charge is broader and is therefore much better for private real estate loans not least, because the rescheduling of a bank is much easier and cheaper than a mortgage and a once registered mortgage after payment of the Loans can easily be used again to raise cash and cash equivalents. With the exception of loans from some public banks, almost all real estate loans paid in Germany are mortgage loans and have been since the 1970s.
Important features of mortgage loans
The main focus in the search for a favorable financing is also on mortgage loans primarily on the interest rate. As with installment loans, banks are required to provide an effective interest rate, the composition of which is regulated by law. The lion’s share of real estate loans in Germany has a fixed interest rate of 5-35 years. Even a variable interest rate with reference to a fixed reference interest rate is possible in principle, but is rarely used even more so since the interest rate has fallen significantly.
Mortgage loans have a term that does not have to be identical to the duration of the fixed interest rate. As a rule, the term goes beyond the fixed interest rate. Following the fixed interest rate, the contract then provides for a variable interest rate. However, after the end of the fixed interest period, borrowers can terminate their loan at any time, so that the settlement of the floating rate loan with a fixed rate loan is unproblematic. If a loan is fully repaid within the first interest-fixing period, it is a Volltilger loan so designated in the industry. These are often offered at slightly cheaper rates.
Mortgage lending, special payments, fixed interest
In addition to the market situation, the mortgage lending rate is decisive for the level of the interest rate. This indicates how high the market value of the financed property is borrowed. A property with a market value of .000250,000 will be funded with a 60% lending spell if the loan is .000150,000. The higher the mortgage lending rate, the higher the interest rate will be.
The loan agreement may provide the borrower with the opportunity to receive free special payments without any indemnity. In the case of an early termination due to a sale of the property, this is advantageous even if the special payments are not actually made. In this case, according to the prevailing legal opinion, the Bank is obliged in this case to subject the full use of the special payment facilities and correspondingly lower the amount of the indemnification.
Advantages and disadvantages compared to installment loans
Mortgage loans are much cheaper than conventional installment loans. For borrowers with good credit ratings, interest rate differentials of three percentage points and more in favor of secured loans are not uncommon. Borrowers with below-average or even impaired credit receive mortgage loans up to a low loan-to-value ratio without or at very low interest premiums, while installment loans are already rejected in the same situation. Mortgage loans can be extended to maturity periods of up to 35 years and more, allowing them to minimize their monthly installment charges.
In return, mortgages incur additional costs for the entry in the land register or the assignment of the claim by one bank to another. In addition, the more stringent regulations for early termination apply: if a debit interest commitment has been agreed, borrowers can withdraw from the contract at the earliest after ten years without paying a high indemnity.
Uses of mortgage loans
The main uses of mortgage loans are trivially related to the real estate market. Most borrowers use both initial and follow-up funding over time. The follow-on financing becomes necessary when the interest rate commitment of the first loan expires and the previous bank does not submit a competitive prolongation offer.
A largely unencumbered property can be used to restructure personal finances. With a mortgage loan, numerous current installments and disbursements can be combined and combined to a much lower loan rate. This is helped by the favorable interest rate and long maturities.
Real estate loans in the current interest rate environment
The current market environment for real estate loans is heavily discussed in the media. The fact is: interest rates on mortgage loans have been falling parallel to bond market returns since the 1980s. In recent years, however, the downward trend has accelerated significantly, so that real estate loans are available on historically favorable terms.
Although several developments have contributed to this, the main reason for the low interest rates can easily be accounted for: International investors have been looking for investments with the least possible risk for years and have a few countries with a stable economic position and first-class assets Public credit rating Among the largest is Germany. High investments in the German bond market have sharply reduced interest rates. For some time now, the EurCen bank (EB) has flanked this development with quantitative measures.
The impact of the low interest rate phase on the real estate market
However, the low interest rates alone should not be the basis for the decision to buy a property for self-use or rental. An investment must be considered as a whole. The low interest rates have already led to increased activity in the real estate market in recent years and, consequently, to rising prices.
In the supposedly attractive conurbations in the south of the republic, up to 32 annual rents are paid for condominiums. At the same time, the purchase prices of recent years, especially in these regions, have risen far more sharply than rents. These are indications for a speculative bubble formation, which even the ZisfelBank does not quite exclude for some cities in Germany.