The real estate loan as a means of buying a residential property.
Compare real estate loans and find the best one for your own project. The real estate loan is the prerequisite for buying or building a home. A real estate loan is taken out at a bank. Mostly with a mixture of equity and real estate loan, you can realize your dream of owning your own home. Important for a real estate loan:
- Real estate loan amount
- Amount of the monthly installment
- Interest rate and repayment
Computer. Banks now offer a wide variety of real estate loan models. It is all the more difficult for customers to find the right type of loan. But there is the possibility to find the right real estate loan with an appropriate real estate loan calculator and to calculate the expected costs.
- Real estate loan calculator with current interest rate developments.
Checklist: How it works with a real estate loan
In order to be able to negotiate the best possible terms in discussion with the bank, good preparation is essential. With the additional help of this checklist and our SSL certificate-protected home loan calculator, you can calculate your budget exactly and go well prepared to the consultation with the bank. Checklist
Real estate loan calculator: how does it work?
The real estate loan calculator requires certain information, for example to automatically calculate the rate.
The information includes:
- Location of the property
- Purchase price of the property
- possible construction or renovation costs
- incidental costs (brokerage commission, real estate transfer tax, notary fees)
- available equity (amount)
- Period of fixed interest rates (between 5 and 30 years)
- desired repayment (in percent or as installment)
- Special repayment (frequency and amount)
Once all the information has been entered, the real estate loan calculator automatically creates the amount of the monthly installment, the remaining debt due after the fixed interest rate, the amount of interest already paid and the loan amount already paid. In addition, there is an indication of how long the term is until full repayment.
What are the advantages of the real estate loan calculator?
The real estate loan calculator provides answers to the following questions:
- How does the amount of equity affect the loan amount required?
- What are the consequences of a higher repayment?
- How do the costs change with different fixed interest periods?
- What percentage does the borrowing rate increase if the rate lock runs longer?
Answering these and similar questions can help the borrower to decide whether he can afford to buy or build a residential property, as well as the necessary real estate loan. For this reason alone, the real estate loan calculator plays a not unimportant role for consumers.
Can a real estate loan calculator serve as the basis for the decision?
Such a calculator can be very helpful, especially for people who are familiar with financing. The simple structure and the understandable terms give the interested party important information. He can then use this as the basis for his decision. The numbers provided by the real estate loan calculator are therefore in many cases at least an important criterion on which the potential borrower bases his decision.
- In addition to the information provided by the computer, the feasibility of the decision should be determined by weighing all advantages and disadvantages.
Calculation examples for a real estate loan
How can the costs be determined? Two calculation examples should help. The formula is:
Loan amount x (debit interest + repayment rate): 1200 = monthly loan installment
Assume a loan amount of 200,000 USD, which bears interest at a borrowing rate of 2 percent. The initial repayment is 2.5 percent. Then the calculation is: 200,000 x 4.5: 1200 = 750 USD. A good guideline for whether you can manage the installment could be the rent to be paid, for example.
- The rent has to be paid anyway as a tenant. If you can do this without major problems, a monthly installment in the same amount for a real estate loan should also be feasible.
With the above formula, you can go through different scenarios by changing the amounts. The following conditions should apply to the second calculation example:
- Loan amount of the mortgage is 300,000 USD
- Borrowing rate of 2.5 percent
- initial repayment of 3 percent
Then the calculation is: 300,000 x 5.5: 1200 = 1375 USD. The monthly charge for the real estate loan is much higher here.
Pay interest. This also applies to a real estate loan. How much interest you have to pay depends on various factors.
- Basically, the lower the borrower’s own equity in the entire purchase or construction financing, the lower they are.
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What interest is charged on a real estate loan?
When dealing with the subject of real estate loans, you will come across various terms for loan interest.
The following types of interest are particularly important:
Nominal interest rate
The nominal interest rate shows how high the bank pays interest on a loan. It shows the borrower how much money he has to pay for the loan each year. However, this interest only refers to the loan amount and does not take into account any other costs.
Effective interest rate
In contrast to the nominal interest rate, the annual percentage rate contains other price-determining factors. These can be payment costs, processing fees or so-called interest settlement dates. The effective interest rate is ultimately an extension of the nominal interest rate. The nominal interest is already included in the annual percentage rate.
- For this reason, potential borrowers should always use the effective interest rate as a criterion when comparing real estate loans from different providers.
The so-called debit interest rate provides information about how high the interest rate for the loan amount is. Almost all types of credit are characterized by the fact that the borrowing rate is fixed for the entire term of the loan. The borrowing rate therefore remains unchanged. The borrower therefore pays back the money borrowed and the borrowing rate.
The ongoing repayment serves to repay the loan with every payment of the loan installment. The higher the agreed repayment, the faster the real estate loan can be repaid. For each year that the borrower finishes earlier, he no longer needs to pay interest. Therefore, a high ongoing repayment is crucial for the total cost of the loan
What does the amount of interest on a real estate loan depend on?
How much interest the bank charges on a loan depends on various factors. In addition to the personal circumstances of the borrower, economic factors also play a role.
The amount of interest is influenced by the following factors:
- Amount of the European or worldwide key interest rates
- Borrower’s equity
- Creditworthiness of the applicant
- Loan term
- Possibility of government funding
In addition to the level of the key interest rates set by the central banks, the amount of existing equity in particular has a major impact on the level of interest rates on a loan. In addition, the banks offer lower interest rates, the shorter the term and the higher the repayment rate. In addition, a good credit rating (high salary, collateral, positive Credit Bureau entry) can depress interest rates.
When do you get particularly low interest rates on your loan?
If you are thinking about a real estate loan, you should also pay attention to the right time, as this can result in lower interest rates. The lower the key interest rates set by the central banks, the cheaper it is to get a loan from the banks. Because the interest charged on loans is based on these key interest rates. The right time for a real estate loan is therefore a low-interest phase, as has existed since the financial crisis in the years from 2008 until today.
Lenders mostly have requirements that the borrower must meet. So you usually need some equity.
Under certain conditions, you can also get a real estate loan without equity.
How does full financing work?
Banks may grant a real estate loan without equity. In this case, experts speak of full funding. However, other requirements must then be met:
- The borrower’s income must be high enough that he can pay the installments without any problems.
- The borrower should have no other liabilities as they could hinder the repayment.
- The property must be of first class quality and in a good location. It is the protection for the bank.
- However, the term full financing for a real estate loan without equity is a little misleading. It does not say that the bank actually bears all costs. It only indicates that either the purchase price is financed 100 percent by the lender or that the bank finances the entire mortgage lending value.
In both cases, there remains a financial gap that is difficult to close without equity. In the first case, the buyer has to bear the incidental purchase costs such as the real estate transfer tax, in the second case, the mortgage lending value is usually discounted by about 10 percent, so that the buyer has to pay this himself.
What needs to be considered with real estate loans without equity
- Schedule interest rate developments
- Low earnings
The full financing of a property purchase (real estate loan without own funds) means that the term of the loan is significantly extended because the amount to be repaid is higher. If you take out a real estate loan without equity, you should aim for the longest possible period for fixed interest rates and think about how to finance the installments when interest rates rise.
At some point there will be follow-up financing and if the interest rates are now much higher, the monthly rate can also increase significantly in the course of the newly agreed financing. This can lead to financial difficulties if the lender cannot service them. In such cases, the property is often foreclosed.
The offer of full financing is of course tempting for many, especially if there is no own funds available. Anyone interested in this type of property purchase should consider carefully whether such financing is feasible in the long term. Professional setbacks such as dismissal or transfer can jeopardize the rates as well as health problems.
- Experts therefore advise against full financing, who have a tight financial framework anyway. This usually includes young families and low earners.
Building-costs. Since the offers of the individual banks differ greatly, it is worthwhile to compare the conditions offered for such a real estate loan by means of a comparison.
If you want to compare individual offers for a real estate loan, you have to pay attention to certain factors.
The following questions should be answered in the comparison:
|How much equity is there?||What is the borrowing rate?|
|Up to what amount is the monthly rate affordable?||How much is the APR offered?|
|What is the nominal interest rate?|
|How do the possible periods for fixed interest rates affect the interest rate?|
|How long is the total term for the real estate loan?|
- Especially when it comes to interest rates, it makes sense to pay attention to the numbers after the decimal point, since even slightly higher decimal places can make a loan significantly more expensive. In addition, information about possible special repayments would be advantageous as they can help to repay a loan faster and to be debt free.
What are the advantages of the real estate loan comparison?
First of all, such a comparison helps the prospect to calculate whether he can afford to buy or build a residential property.
For a comparison, personal information is always required that provides information about the financial situation of the potential borrower.
- For a real estate loan comparison, for example, the information must be available on how much income and expenditure are compared each month, how much money is actually left for living expenses. You can also see which earnings group someone belongs to, whether they have a secure job and what their payment behavior was in the past (Credit Bureau). All of these things ultimately flow into the offer of the individual banks and determine the conditions for the real estate loan.
The comparison also offers the potential borrower the opportunity to get to know the overall service and customer service better. In the course of a comparison, you can ask the bank for an offer for a loan and you will quickly notice whether the customer is important to you.
Does she just reply with an email or does she invite the customer to a personal consultation? The bank’s attitude towards the customer can be recognized from such and similar “trifles”.
Important factor: the age of the borrower
A comparison of loan offers for real estate deals takes into account many different factors. However, many banks not only look at the numbers submitted, but also at the age of the applicant.
The older it is, the stricter the conditions for the term and the rate amount. An interested party should definitely ask about such factors, especially if they are at an advanced age and still want to buy a house or apartment. Information about the age is not always queried in an online comparison.
- The banks’ approach is perfectly understandable, because statistically speaking, a borrower who is about to retire no longer has as much time and money for repayment as a younger person. It would simply not make sense to arrange a term of 35 years at the age of 60.