The state-owned Kreditanstalt für Wiederaufbau (KfW) grants low-interest loans as part of the promotion of the housing industry. However, these are not directly awarded by KfW, but are applied for through the lender as part of real estate financing or mortgage lending and subsequently paid out as a result.
The residential property program 124 supports the construction or acquisition of self-occupied homes and condominiums in Germany. When does the use of KfW 124 make funds for real estate financing useful?
What borrowers should pay attention to when real estate financing with KfW
- KfW grants loans under the Home Ownership Program 124 exclusively through lenders (banks, savings banks and insurance companies), which assume liability for the loans they have made. This means that the promotional bank does not lend the loan directly to the borrower.
Tip: First contact a mortgage broker or bank partner
- The application for the Home Ownership Program 124 must be submitted to a lender of your choice as part of real estate financing or mortgage lending prior to the commencement of the project – at the latest, however, immediately after the conclusion of the notarised purchase agreement. However, planning and consulting services are not considered to be the start of the project. However, the subsidy program can no longer be used for previously acquired properties or construction work begun. Tip: Make a loan application for KfW loan before starting the measure
- Banks or financing providers are not always interested in offering financing for real estate financing or mortgage lending . Builders should therefore explicitly address the issue of state subsidies to the financier or to a building loan broker. Tip: Baecheldvermittler or bank partners actively respond to possible funding
Other offers without KfW funding can also be interesting
- The Home Ownership Program 124 may not always be the best solution for real estate financing. Often a comparable loan is cheaper than the inclusion of a KfW loan in the mortgage lending. In a real estate financing with a higher use of equity, the interest on construction money without promotion by the promotional bank are often even cheaper. Therefore, it is advisable to compare the offers for real estate financing in any case and to examine individually. Building loan brokers compare the interest rates for construction money on a daily basis and then check whether a KfW subsidy program can be meaningfully used for you. Tip: Individual examination and comparison of conditions and funding
- Home ownership program 124 is much less flexible than most home loans. While traditional real estate financing usually allows special repayment within the debit interest lock-in period, KfW’s residential property program 124 does not offer a similar option for special repayment. Also, a change in the repayment rate is not possible with this promotional loan. Tip: Pay attention to flexibility in the repayment of the loan
- The residential property program 124 is offered for fixed interest rates of 5 and 10 years. However, a longer-term fixed interest rate is not possible with this KfW program. This means that the borrower may have an interest rate risk at the end of the borrowing rate commitment. A strategy of longer-term interest rate security can therefore be opposed to the residential property program 124. Tip: Pay attention to interest rate risk at the end of the debit interest payment
- For the residential property program 124, the borrowers have a grace period of at least one year (free choice between 1 and 5 years). According to this, the builder or buyer only pays the interest on the KfW loan during this time. After this redemption-free startup period, the overall rate increases by the repayment portion. Tip: calculate the rate from the beginning
The term has a direct influence on the interest rate commitment
- The term of the residential property program 124 can be selected between 4 and 35 years. Shortening the term of the KfW loan usually leads to an improvement in the interest rate. Here are the current conditions of the residential property program 124:
|1.70% (1.71%)||4 to 20 years||1 to 3 years||5 years*|
|2.25% (2.27%)||4 to 20 years||1 to 3 years||ten years*|
|1.70% (1.71%)||21 to 35 years||1 to 5 years||5 years*|
|2.35% (2.38%)||21 to 35 years||1 to 5 years||ten years*|
|Debit rate (effective interest rate) per year||running time||Redemption-free startup period||fixed interest rate|
- Loan amount up to 50,000 euros
- Payout 100%
- Available either in a sum or in partial amounts
- The loan can be obtained within 12 months of the commitment. An extension to a maximum of 36 months is also possible.
- 4 months and 2 bank business days after commitment, a commitment commission of 0.25% per month will be added to the unclaimed loan amount.
Source: www.kfw.de, as of 08.07.2014
Shortening the term can bring interest rate advantage
- Due to the maximum period of unpaid interest of 4 months and 2 bank working days after commitment, it is often advisable to withdraw the KfW funds first. Following this, other bank loans with a longer period of provision-free interest can be claimed. Tip: KfW 124 Getting funds first
- Finally, promotional loans can also be combined with other programs of the Kreditanstalt für Wiederaufbau . Building loan brokers compare the interest rates for construction money for you on a daily basis and then check which KfW subsidy programs and subsidies can be meaningfully used for you. Tip: Check combination of conveyors
Whether the use of the KfW Home Ownership Program is worthwhile is always an individual matter. For further information please contact the mortgage advisors of DTW | Real estate financing available.