The repayment of a loan is called repayment. The terms and conditions a borrower agrees to for repayment have an impact on the term and the total cost of a loan. picture alliance / picture alliance/Bildagentur-online | McPHOTO / Harald Richter
Most property owners have a loan from a bank that they have to pay back. This process is called repayment.
The repayment is determined by the repayment rate, which influences the monthly payments and term.
High repayment rates lead to faster repayment and lower overall costs, while low repayments mean longer terms and higher overall costs.
A detached single-family home is by far the biggest dream home for Germans, as one Survey the brokerage platform Interhyp shows. In order to fulfill this dream, the majority of property owners take out a loan from a bank.
An important aspect of lending is repayment.
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What is loan repayment?
Repayment is a term that describes the repayment of a loan. There are different types of repayment, with a classic real estate loan usually a so-called Annuity repayment agreed. Here, the borrower pays back the amount every month in equal installments. Each payment includes a portion for repaying the loan and a portion that pays the interest.
In the context of a loan, the repayment rate is an important indicator, it is also called the repayment rate. The Repayment rate indicates the percentage of the loan that is repaid annually. The repayment rate influences the monthly payments and the term of the loan.
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How are repayment rate and interest rate related?
The repayment rate and the interest rate have an influence on the term and the total cost of the loan.
With annuity repayment, the installments remain the same over the entire term. These installments consist of a repayment portion and an interest portion. When repayment begins, the remaining debt is high, and the interest amounts due, i.e. the interest portion, are also high. Over time, the remaining debt decreases, which means the interest portion decreases and the repayment portion increases.
The interest rate therefore determines the amount of interest in each installment, but also the total cost of the loan.
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What is the advantage of a high repayment rate?
A high repayment rate means that a larger percentage of the loan amount is repaid within a year. A high repayment rate has the advantage that a loan is paid off more quickly. In addition, the rapid reduction of the remaining debt also reduces the interest costs, which leads to lower overall costs of the loan.
It should be noted, however, that the monthly payments are higher with a high repayment rate.
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What is the advantage of a low repayment rate?
With a low repayment rate, the monthly costs are lower. However, it takes longer to repay the loan and the total costs are higher because more interest must be paid.
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