Mortgage Loan For Your Home
A mortgage loan belongs to the group of various real estate loans. With these loans it is possible to finance construction finance projects such as renovation or modernization measures as well as the construction or purchase of a property. This form of credit is always earmarked and must be used for the purpose specified when applying for a loan. The bank must then also demonstrate this use, for example by submitting the notary’s due date or by invoices from the craftsmen involved in the construction.
Another feature is its long term, which can be more than 30 years. This means that relatively low monthly installments are possible despite the usually high loan amounts of more than USD 100,000.
In most cases, the mortgage loan is granted as an annuity loan. With these loans, borrowers can agree on a fixed interest period, which can even be fixed for some providers over the entire term. Of course, this provides planning security for the borrower, but the interest rates are usually higher given such long fixed-interest periods. Fixed interest rates between 10-15 years are common.
How does the interest calculation work?
One of the most important points when taking out a mortgage loan is without a doubt the interest rate, because in addition to the repayment rate, it is decisive for the amount of the monthly loan installment and the total charge from the loan.
The loan interest for the financing is determined on the basis of various factors. On the one hand, this is the general interest level. The possible refinancing of the banks, which of course want to generate profits by granting loans, is decided on these interest rates. However, the creditworthiness of the borrower and thus the respective default risk for the bank is also decisive. In order to check this, a scoring is carried out in which the borrower’s liabilities, assets, and income and homework are examined. The loan can only be granted if the borrower can demonstrate a sufficiently high income and existing credit obligations have been met.
The scoring continues to check whether the existing security
The land charge, is of sufficient value. This is the case if at least the credit value can be achieved in a recovery. The bank will examine this fact on the basis of a mortgage lending value, which should reflect the current market value. In order to achieve increased security, a discount of at least 20% on the market value is made, since the proceeds from auctions often differ from the market value.
As a result of this, the banks still require equity of at least 20% of the financing amount, otherwise this part of the loan would be granted bare, which leads to increased risk for the bank and interest premiums for the borrower. To find cheap loans, it is worth comparing interest rates online. However, only the lowest interest rates for the mortgage loan are given, which may change after the loan documents have been submitted. The level of interest premiums varies widely from bank to bank, as each institution has its own scoring rules. Such comparison sites should only be a first guide, but it is still necessary to obtain exact financing offers.
An overview of the costs
The mortgage loan not only incurs the interest stated in the comparison, but also various other costs and fees. These should be inquired about during a financing discussion, because they influence the total cost of the loan. The main costs include processing fees, which are often calculated as a percentage of the loan amount.
Usually between 0.5-1% of the loan amount is calculated, which is a burden especially for larger loan amounts. Only a few direct banks are already waiving the processing fee, which of course has a positive effect on the annual percentage rate. This effective interest rate provides information about the costs of the loan. The processing fee is also taken into account here.
In addition to the processing fees, some banks also charge a valuation fee for calculating the market value of the house. This fee can also be up to 1% of the loan amount. It should be noted here that the valuation fee does not have to be included in the effective interest and is therefore often “disguised”. For larger amounts of credit, the banks also require the borrowers to provide an expert opinion. These costs are also borne by the borrower. Account management fees or account statement fees may still be incurred as additional credit costs, although these are relatively low and can nevertheless add up to excessive amounts over a period of 30 years.
Ultimately, borrowers should not forget that a mortgage must be registered for the mortgage loan. This land charge must be agreed with a notary and then entered in the land register. Each borrower must also bear these costs themselves.
For a free and independent overview of providers, interest rates and conditions for a mortgage loan, use our non-binding comparison!