Much equity in mortgages is not worth it News | Current

Mortgage lenders reward homebuyers with interest discounts if they bring in more than 20% equity. However, an analysis by HypoPlus shows that an equity share of more than a third of the financing amount is not worthwhile.

Mortgage institutions give people with good credit a lower interest rate. An often used means for this is to bring in more equity than the required 20% of the property value. However, an evaluation by HypoPlus, the mortgage specialist in the Comparis Group, now shows that if the loan is below 65%, mortgage institutes almost no longer offer any additional interest rate discounts. So it is not worth bringing in as much equity as possible when buying a house. Rather, a loan of a maximum of two thirds of the property value is ideal. In this case, the mortgage interest rate is reduced by up to 25 basis points (see graphic).

Getting mortgage with 65% threshold is crucial

“That has to do with the high security of so-called first mortgages. These are available up to a lending of 65 percent,” says Comparis financial expert Frédéric Papp. In the case of a foreclosure sale of the property, the selling price is usually sufficient to cover the full amount of the first mortgage. An even lower lending would therefore bring little additional security to the mortgage institutions.

The analysis of the HypoPlus data also shows that switching from the house bank to a cheaper provider results in an additional interest discount of 5 to 10 basis points on average. The transfer of the salary account and additional assets from around 10% of the mortgage sum to the mortgage institute further increases the chances of the maximum interest discount.

“The presence of additional assets signals to the mortgage institution that the borrowers have not reached the limit of the loan,” says Papp. That lowers the credit risk. Asset transfers also opened up sales opportunities for the lending institutions for their own investment products.

Good affordability has little impact on mortgage interest

The analysis of the HypoPlus data also shows that affordability has only a marginal effect on mortgage interest. Residential property is considered affordable if the monthly costs do not exceed a third of the mortgage borrower’s household income. A very good affordability of around 18% (33% is common) would reduce the benchmark interest rate by only 5 basis points in the best case. “For the mortgage institute, affordability is primarily a test of whether the desired mortgage is granted,” said Papp.

Finally, the expert advises caution in the event of excessive amortization. Those who amortize too much too quickly run the risk of not having enough liquid funds during retirement to finance their accustomed standard of living. In addition, it is often difficult to top up the mortgage both a few years before and during retirement.