When applying for the building loan, an important point is the determination of the repayment. Since the loans have a long term, it is very important to accurately determine the repayment. To do this, it is first necessary to know what types of repayment there are.
Criteria for repayment
Before the method of repayment is determined, various criteria need to be taken into account. These are:
- monthly income
- marital status
- Higher loan interest rates and fixed interest periods
The decisive factor here is the monthly net income. It is usually the same for employees and civil servants. For workers, it depends on the number of hours worked. In order to get a meaningful basis, an average value should be formed. In general, the rule applies, the higher the income, the higher the repayment rate can be.
The repayment should be such that, for example, the loan has only a small remaining debt from the age of 65, or it should be repaid by then. Banks are very careful about age, there are often upper limits up to which loans can still be approved, for example that the loan must be repaid by the age of 70.
The repayment should also take into account the current and possibly future marital status. The number of family members influences the freely available net income. Every household person incurs living expenses. Especially when children live in the household, it has to be taken into account that the needs increase with increasing age of the children. This aspect should be given sufficient consideration when setting the repayment rate.
Amount of loan interest and fixed interest period
The loan amount significantly affects the term of the loan with a fixed repayment amount. The higher the interest rate, the smaller the monthly repayment and vice versa. Especially in periods of high interest rates, many loans are hardly repaid. In contrast, the repayment is significantly higher in periods of low interest rates.
The fixed interest period provides a calculation basis for the repayment. The longer this period, the longer there is absolute interest rate certainty. The rule is that when interest rates are low, the fixed interest period should be as long as possible; if interest rates are high, however, it should be rather short.
An annuity indicates a constant rate. With an annuity loan, the repayment rate (annuity) is always the same, for example 500 dollars. As with any type of repayment, this always consists of two components. These are the interest payments and the repayment.
The special thing about annuity is that these two components develop differently over time. Interest is reduced with each repayment. The pro rata monthly interest is also reduced. Since the annuity always remains the same, the repayment portion increases in line with the fall in interest rates. As a rule, the repayment rate is between 1-3% at the beginning, then increases steadily over time.
The total term of the loan is largely influenced by the respective interest level. In periods of high interest rates, interest rates are well above 7 percent, the repayment portion increases only slightly, the term is therefore very long. Conversely, increases in low interest rates, interest rates are below 4 percent, the repayment share is stronger, the total term of the loan is therefore shorter.
Repayment loans differ from annuity loans in that the rate is not constant, but the repayment portion of the repayment rate is constant. This type of repayment has the advantage that the total term is already fixed when the loan is taken out. It is calculated by dividing the loan amount by the monthly repayment portion.
The total repayment rate also consists of the two components interest and repayment. Both parts are added. Since interest rates can change over time, the credit rate changes accordingly.
Borrowers against high risk, particularly in low interest rates. Interest rates are expected to rise in the future. Depending on how strong these increases are, the situation may arise that the rates can no longer be paid. It is therefore very important that interest rates should be fixed as long as possible in these phases. This has the advantage of planning security.
The situation is reversed in periods of high interest rates. In the future, credit rates are expected to fall here, as interest rates will continue to fall. In periods of constant interest rates, the credit rates remain almost unchanged.
Repayment loans are rather rare in practice. The reason for this is that credit rates can change permanently.
Total loans due
Loans that are fully due have a completely different repayment type. The total repayment is made on a predetermined date. The repayment amount often comes from contracts that fall due on this fixed date. The classic case is the maturity of life insurance. But building loan contracts or other savings contracts can also be used for repayment.
During the term up to the total repayment, the repayment rate consists only of the interest payments. These loans may make sense in certain constellations, but in comparison of the total interest payments they show a higher interest burden. This is due to the fact that no repayment takes place until the replacement date.
A few years ago, the PFSA introduced new regulations regarding mortgage loans and provisions regarding e.g. minimum own contribution appeared. It started at 5% and was gradually to be increased year after year until it reached 20%.
Currently, the minimum required own contribution is 15%, however, the PFSA agreed that it would be possible to ensure the minimum own contribution to 90%.
In short, banks still require a minimum of 10% of their own contribution and in the absence of a further 5-10%, banks will charge additional insurance (usually an amount or margin increase by some value until reaching the required level).
We don’t have the required 10% own contribution to the mortgage?
There are several solutions to this situation. Until recently, you could get a loan of up to 100% of the value of the property, however, when the valuation of the property was correspondingly higher than the amount for which customers buy. Unfortunately, this method is no longer available at this time. Instead, new opportunities appeared to “bypass” the required 10% own contribution.
The whole method involves additional security where LTV will be below 80-90% depending on the bank. At the moment, 3 banks allow such a loan and if we have additional collateral that is not mortgaged, we can apply for a loan without own contribution.
In this case, we submit a normal application together with information about additional collateral and if the whole procedure of granting the loan passes successfully, we will not have to have our own funds in the amount of a minimum of 10% from the value of the property.
To which banks to send applications without own contribution?
At the moment, I know from experience that such applications can be submitted at 3 banks. The first bank is Good Finance, which has a good offer and should be treated as the first choice. The margin at the moment is 2.1% at the beginning and the commission from 1.5%.
The bank sees no problem with accepting additional collateral and until recently it was able to even realize a loan for 100% of the property value. At this time, only with additional security in the form of additional real estates such as apartments, houses or building plots.
Another bank where it is worth submitting an application, which does not have a margin network because it is the system that decides what offer the customer will get after scoring. As for the commission, there is a promotion at the moment and it can even be 0%.
Can you get such a loan?
The offer, similarly to Good Finance, is good and it is always worth submitting an application to negotiate the conditions at a later stage.
After submitting applications to the previous two, there is one more – Good Credit Polbank, where the offer is a little worse, however, in the case of such loans, it is worth submitting applications to 2-3 banks because, in the case of a negative decision, there is always an alternative.
Sure, yes, and if someone needs help, I will gladly process such a topic. I have many years of experience and currently submitted such topics in the above-mentioned banks.