07/24/2022 06:57 am –
Getting a real estate loan has long been difficult for older people. But now the banks are rethinking – especially when there is reliable collateral.
Seniors with their own home are not prevented from taking out a loan even at an advanced age and securing this in the land register of the responsible district court via a land charge in favor of the bank.
There are four different ways to do this: classic mortgage loans from banks, Allianz Best Ager loans, KfW loans for age-appropriate conversions and home savings loans.
What are the advantages of classic mortgage loans from banks?
Seniors who own their own home are rightly proud when their own four walls are finally debt-free. It is possible that they have not yet erased the land charges recorded during construction or purchase and entered in the third section of the land register.
This is more of an advantage if you still need money when you are old to modernize or convert your home to make it suitable for the elderly. If, for example, you need €50,000 for this and the registered land charge is higher, the bank will refrain from making a new entry. After all, the abstract land charge is not tied to an underlying loan claim like the mortgage.
However, if all mortgages have already been deleted, a new mortgage must be entered in favor of the bank. This entails costs for the notarial order and the entry of the land charge in the land register (ancillary financing costs of the security in rem), which account for around 0.5% of the loan amount.
70- or 75-year-old homeowners should prefer a fixed-rate period of only five or 10 years, during which the loan is fully repaid. Here is an example: A loan of €50,000 is repaid in full after ten years at a debit interest rate of 3%. The repayment rate plus saved interest is then 8.59% and the monthly rate for interest and repayment is €482.92.
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The total interest costs for this full repayment loan then amount to €7,950 (= €482.92 x 120 months minus the loan amount of €50,000). The total interest costs will of course increase or decrease if the borrowing rate 1 rises above 3% or falls below 3%. Not all banks offer full repayment after five years. In addition, the monthly installment for interest and repayment would roughly double, which would be too great a financial burden for the vast majority of seniors.
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What happens if the borrower dies?
The real estate creditworthiness assessment guidelines regulation (ImmoKWPLV) expressly states that a possible death of the borrower during the contract period is not taken into account under certain conditions. This should apply if the borrower is likely to meet his obligations under the loan agreement during his lifetime and the property value ensures that the liabilities associated with the loan agreement are covered.
According to this regulation, the creditworthiness and creditworthiness check depends on factors such as income, savings and other assets on the one hand and expenses, debts and other liabilities on the other.
The creditworthiness increases, the higher the retirement income (statutory, company and private pensions or pensions) and the lower the current expenses. Assets that cannot be liquidated in the short term (e.g. savings bonds or time deposits with a remaining term of several years) and the lack of residual debt also increase creditworthiness.
The land charge entered in the land register should be sufficient as security for the loan if it is significantly below the market value of the home. The bank offers additional loan security through the co-liability obligation of a significantly younger spouse. Daughter or son should only be used as a second borrower or even guarantor in exceptional cases, and only if they are intended as future heirs in the will or inheritance contract. One overcollateralization should therefore be avoided by older borrowers.
Many senior citizens refuse to burden their own home again with land charges in old age. This is emotionally understandable, since the home is no longer debt-free. However, raising money or capital through a mortgage as security for a previously debt-free home should not be ruled out from the outset.
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What are the advantages of the Allianz Best Ager loan for homeowners over 60?
Allianz, Germany’s largest insurer, offers homeowners over the age of 60 fixed loans without repayment of up to 40% of the market value (so-called Allianz Best Ager financing). The interest can be fixed for 25 years, for example, and then accounts for around 3.5% per year. For example, for a home with a market value of €500,000, the mortgage loan with no repayment can amount to €200,000. With a mortgage interest rate of, for example, 3.5% per year, interest costs of €7,000 per year or €583.33 per month have to be paid.
For the security of Allianz, a first-rate land charge of €200,000 is entered in the third section of the land register. The final repayment of the mortgage loan is made by the owner himself or, in the event of his death, by his heirs. In the case of repayment by the heir or heirs, there is no prepayment penalty. Alternatively, the heirs can also take over the fixed loan and then continue it.
The home itself must currently be debt-free. It doesn’t matter what the new repayment-free fixed loan is used for. Additional notary and land register costs for the new entry of a land charge are only incurred if the previous land charges have already been deleted or are lower than the new land charge to be entered. The borrower can also terminate the fixed loan unilaterally after ten years with a six-month notice period without prepayment penalty.
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What are the advantages of KfW loans for age-appropriate conversion?
The state-owned KfW-Bank grants loans of up to €50,000 for the conversion of one’s own home to make it suitable for the elderly or the purchase of living space that has been converted for the elderly (program no. 159).
These are barrier-reducing and burglary-proof measures. The barrier-reducing measures include, in particular, the entrance area and apartment access, vertical development/overcoming of stairs and steps, adjustment of the room layout and/or the removal of thresholds, bathroom conversion (with floor-level shower) or measures in sanitary rooms.
Advantage: The KfW loan is independent of age. There is no age limit (e.g. 80 years). The application is not to be submitted directly to the KfW, but through a bank. This can be a disadvantage if your house bank advises against it, possibly for flimsy reasons. The bank, as the on-lending financial institution, is liable for the KfW loan and decides on the allocation. For this she receives a commission from KfW, which she believes is too low due to the processing costs.
The borrowing rate at the beginning of July 2022 was 2.45% (effectively 2.48%) for a ten-year fixed interest rate. The first year or the first two years are repayment-free. With a maximum loan of €50,000 and two initial years without repayment, the monthly installment for interest and repayment is €574.07 from the third year. In the first two years, only interest of €204.16 per month is paid. The loan is fully repaid after ten years. The total interest expense is €7,560.71.
Ongoing interest payments and regular repayments can be dispensed with entirely if you opt for a final loan (fixed loan) instead. In this case, at the end of the fixed-interest period, the KfW loan will be repaid in one sum together with the accrued interest costs. With a maximum KfW loan of €50,000 and a borrowing rate of 2.88%, €66,417.05 would have to be paid in one fell swoop after ten years of fixed interest rates.
However, such a final repayment without ongoing interest payments is only possible if liquid assets of the corresponding amount are available by the end of the tenth year at the latest. This can be, for example, the guaranteed maturity benefit of a capital life insurance or private pension insurance.
Instead of the KfW loan, you can also opt for a non-repayable subsidy of up to €6,250 for the removal of barriers and more living comfort (program no. 455-B). However, applications are only approved if sufficient federal funds are available.
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What are the advantages of building society loans?
In rather rare cases, seniors still have an ongoing home savings contract that will soon be ready for allocation. The allocation takes place after at least 40 or 50 percent of the home savings sum has been paid in and the target rating number has been reached. For example, if the home savings sum is €50,000 and the home savings credit including interest is €25,000, the home savings loan will be the same after allocation.
The allocation of the home savings contract requires a residential use of the home savings funds, for example the modernization of the home. The home savings loan of €25,000, for example, is usually fully repaid after 10 to 12 years, depending on the interest and repayment rate. This is possible because a fairly high repayment rate is usually used as a basis. The home savings loan can also be repaid beforehand without charging a prepayment penalty.
According to the current Bausparkassen Ordinance, building society loans up to an amount of €50,000 can also be granted from August 2021 without a land charge being entered. This saves up to €50,000 on the costs of ordering and registering a mortgage for a home loan.
Seniors who, after clearing all mortgages, already own a home that is free of debt according to the land register and do not want to enter any new mortgages, will be happy about this. This unsecured loan are particularly suitable for modernization, energy-saving refurbishment and age-appropriate conversions.
(MS)
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