This initially has the advantage that the builder or buyer remains liquid. However, full financing also has disadvantages. Five pitfalls at a glance:
– Gross and net financing: Experts talk about full financing when the prospective property owner takes out a loan for 100 percent of the purchase price: If the house costs 350,000 euros, the entire amount comes from the financial institution. This is the net financing. In addition, broker commission, notary fees, land register entry and real estate transfer tax must be taken into account. These costs make up another twelve percent of the purchase price. In addition, there are moving costs, renovations and expenses for new furniture. Taken together, these items correspond to gross financing.
If you want to borrow the money for these additional expenses, you need significantly more than 100 percent financing. Most banks either do not accept this or charge a risk premium in the form of higher loan interest rates. Michael Knobloch from the Institute for Financial Services (iff) in Hamburg therefore advises paying at least the additional costs and the move from your own capital.
– Term and repayment: Those who take out a lot of money sometimes end up sputtering for a long time. With 100 percent financing with only 1 percent repayment, it can take a long time until the mortgage is paid off and the property owner is finally the master of his own home. Christiane Kienitz, consultant for real estate financing at the Hessen consumer advice service, calculates: A loan of 150,000 euros is fixed over ten years. The effective interest rate is 1.5 percent per year, the repayment rate is 1 percent. After 10 years, the remaining debt is still around 133,800 euros.
How long it takes until the loan is repaid in full depends, among other things, on the interest rate due on the follow-up financing. According to Kienitz, if 6 percent interest has to be paid on the remaining debt, the total term for the loan is more than 34 years. If the subsequent interest rate is 3.5 percent, the loan is repaid after almost 44 years. As long as the bank is in the land register.
However, the banks have reacted to this situation: the standard repayment has now been increased to 2 percent in order to prevent extremely long terms. “If you want to further optimize your financing, repay even more or at least agree on special repayments.”
– Follow-up financing and price fluctuations: Mortgage contracts usually stipulate an interest rate fixation of ten years. If interest rates rise, things become tight with full financing when the deadline expires: Because little of the loan originally taken out has been repaid, the burden increases instead of decreasing due to the low level of debt relief. “High follow-up rate for follow-up financing,” says Kienitz, summing up the phenomenon. Unaffordable installments then bring many fully financing property owners to the brink of ruin.
Michael Knobloch sees market price fluctuations as another risk. Falling real estate prices or loss of value could put borrowers in trouble who have to part with their house or apartment during the loan term. “You bought for 350,000 euros, but can only sell for 300,000 euros”. The seller is left with the remaining amount.
– Prepayment and compensation: Financial institutions pay dearly for the early repayment of a loan. You are legally entitled to an early repayment penalty if a fixed interest rate was agreed in the contract. This compensation can quickly reach five-digit euros.
This puts a lot of strain on full financing: a house that was purchased for 350,000 euros and is fully financed by debt has to be sold after just one year. Due to low repayments, the owner is still in debt for 348,000 euros. The bank also demands an early repayment penalty of 15,000 euros. The bottom line is that the debts increase to 363,000 euros.
If you don’t have enough money to pay the compensation out of your own pocket due to a lack of savings, a new – and more expensive – installment loan will be necessary. Otherwise the house sale will be shaky. Knobloch: “The bank only leaves the contract if the mortgage is deleted. That will only happen when there are no more debts.”
– Value and vicissitudes of life: Low interest rates encourage people to take out high mortgages. According to the Frankfurt financial advisor Max Herbst, some consumers who are willing to buy tend to overestimate themselves when they assume “it’s okay”: “I live in a luxury apartment, then I’ll buy a luxury apartment.” Opinions often differ as to whether the property is worth the money. While the borrower wants to shell out half a million euros for the dream apartment, the bank only wants to grant a loan of 400,000 euros. From their point of view, this corresponds to 100 percent financing.
Divorce, children, job loss, illness: With full financing, any change in income is immediately reflected in the account. Anyone who has already reached the limit with their installment usually no longer has a chance of making up for financial bottlenecks. If an emergency sale threatens, disaster has arrived.
2024-01-07 02:25:44
#Full #credit #full #risk #pitfalls #financing #home
