Reducing mortgage lending saves money
A higher repayment of mortgage lending can pay off
In the current period of low interest rates, borrowers should consider a higher mortgage repayment, ie more than the usual 1% initial repayment. The reason is relatively simple. The higher the borrower chooses the initial repayment for his real estate financing , the faster his home loan is paid off. As a result, he saves a lot of money because the sum of the debit interest paid over the entire term of the real estate financing is less overall. The reason for this is, in the case of an annuity loan, the disproportionate increase in the repayment during the repayment of the construction loan. With each monthly installment that the client pays to the lender for mortgage lending, the borrowing rate decreases and the repayment installment increases.
Can I afford the higher mortgage repayment?
Before a builder or housing buyer decides to buy a mortgage, he first has to calculate his own financial resources , which are available to him on a monthly basis. After analyzing the personal financial situation, he should ask himself more questions about his real estate financing: Which term do I choose for my real estate financing? What is the repayment portion of the monthly installment of real estate financing? How long do I want to secure the borrowing rate for real estate financing? Can I afford a higher mortgage repayment?
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If the borrower chooses a shorter debit interest, he only secures the currently low interest on construction money for a few years. But he has more financial leeway for a higher mortgage repayment and thus pays the building loan faster. If, on the other hand, a longer borrowing rate is chosen, the borrower pays a higher interest rate for interest rate security and may have less free funds to repay mortgage lending. For example, interest rates on real estate financing with a term of more than 20 years are on average around 0.50 percentage points higher than on mortgage lending with a ten-year interest rate commitment.
The following example shows how much the effect of the “higher repayment” effect on the cost of real estate financing. A customer buys a property worth € 250,000 and requires a mortgage of € 200,000. He compares the initial repayment installments of 1% and 3%, with a fixed interest rate of 30 years and a borrowing rate of 3.50%. If the borrower chooses an initial repayment installment of 1%, interest expense of around € 170,000 will be incurred for the entire fixed interest rate. However, the construction loan is only half redeemed. He thus incurred further costs during follow-up financing .
If the customer agrees an initial repayment installment of 3%, with a fixed interest period of 30 years, he will repay the construction loan completely and save a lot of money. Because the total cost of mortgage lending in this case amounts to about 92,000, – €. Thereafter, the building loan is repaid in full and there are no additional costs. As can be seen from this example, higher initial repayments have a positive effect on the total cost of mortgage lending.
Builders and home buyers should take into account in their real estate financing a saving in the total cost of a higher repayment of mortgage lending in their financing plan. The construction calculator of DTW | Real estate financing help you to plan your mortgage lending. If you have any questions about your real estate financing, please contact the mortgage advisors at DTW | Real estate financing available.