The construction loan is a special-purpose loan that is used to build or buy your own four walls. Because this usually involves amounts in the six-digit range and the borrower has to pay off over a few decades, you should be particularly careful when taking out a building loan. In order for the dream of owning a home to become reality, several points must be clarified beforehand.
The following aspects should be taken into account when building loans:
- 20 percent equity
- Allow for unexpected costs
- It is important to adjust and repay the installments
- Pay off loans before retirement
How much should the equity for a building loan be?
So that the property can be financed, it is important to have enough savings yourself so that the bank has security. As a rule, the borrower should present at least 20 percent of the total amount. The more savings there are, the more favorable the interest conditions are for the borrower. Even the value of the home is critical to the interest rate. The lower the lending limit, the lower it is. Lending is the value of the dream home that is available to the bank as security and can therefore be pledged if necessary. The loan is defined on the basis of defined guidelines, which are normally between 60 and 80 percent at the most.
How much money should be taken out on the building loan?
In order to determine the required loan amount, advice is necessary because not only a loan that is too high, but also a loan that is too low has major disadvantages. Most of the time, the borrower – especially in the construction and not in the purchase – is suddenly faced with additional expenses, for example due to unexpected renovations. If the calculation is too tight and the loan needs to be increased, it is possible that this additional financing will be particularly expensive. It is therefore imperative to assume unexpected costs and to include a reserve for this.
This also includes the expenses for renovation work and the increased ancillary costs that home owners face. Even costs such as the property tax that arises every year and the property transfer tax must be factored in. When it comes to condominiums, e.g. B. also to pay administrator fees. If, on the other hand, an excessively high loan has been taken out, the prepayment penalty must be paid for the money that is repaid because it is not needed. This unnecessary risk should therefore be avoided in any case.
What repayment amount should I choose?
It is common for a home loan to repay one percent of the loan amount. However, this value increases during the credit period and is ideally around two percent. However, this repayment should always be based on your own financial situation.
If there is a lot of money, it is possible that a higher repayment amount can be agreed so that the loan can be repaid more quickly. However, the total income that remains after deducting the cost of living should also not be included in the repayment.
After all, changes in the life phase can quickly occur during the long term and thus a reduction in the available money. For example, if a job is temporarily sought or if children are born, the financial situation changes enormously. An iron reserve should therefore always be made for emergencies.
For this reason, care must also be taken to ensure that the building renovation has the correct level of flexibility. Special repayments are therefore to be agreed, which are possible either through irregular amounts or fixed annual payments. In this way, the loan can be repaid more quickly.
Even the installments can still be a bit flexible upwards and downwards, so that repayment can be temporarily suspended if necessary. Nevertheless, the home should be paid off before reaching retirement age. This has to be taken into account when borrowing. In order to be able to better estimate which effective interest is due for which loan duration, it makes sense to use a loan comparison so that the best offer is found.
Which fixed interest rate is to be chosen – variable or fixed building loan?
For house loans, the fixed interest rate is often a maximum of ten years, depending on the total term. If the loan was concluded at a current low building interest rate, it is recommended that you commit yourself to it for as long as possible. However, anyone who expects an interest rate cut to come in the long term makes more short-term fixed interest rates and a subsequent debt rescheduling loan more meaningful.
Even the question of whether it is better to choose a full-time loan or follow-up financing depends on the situation in which the individual is and can best be determined during a consultation.