Mortgage

Special payments outside the agreed repayment schedule are referred to as early repayment. By repaying a loan early, one can either reduce the monthly burden or shorten the term of the loan. This article explains when and how this is possible and what costs you can expect to incur.

The most important facts in brief

• If a borrower repays more than the contractually agreed installments, this is referred to as unscheduled repayments.
• Repaying a loan early can mean that you pay more than required or that you repay the entire outstanding balance and thus terminate the loan agreement.
• In housing loans, there is a difference between fixed and variable interest rates.
• Variable-rate loans can be repaid at any time and in any amount without charges.
• In the case of fixed-rate loans, unscheduled repayments of up to € 10 are permitted.000 per year free of charge possible.

What does "early repayment of a loan" mean??

When taking out a loan, the borrower receives a repayment schedule. As a rule, this provides for a monthly fixed payment. This amount can vary due to fluctuations in the current interest rate. However, if the debtor pays in further one-off amounts independently of these payments, these are unscheduled repayments.

It is said that he repays the loan early. This can mean, on the one hand, that he simply pays a certain additional amount or that he repays the entire outstanding loan amount early, which results in the termination of the loan.

Experts are certain that a trend reversal in construction financing interest rates has been initiated. This also increases the residual debt risk. Construction interest rates have been rising since the beginning of the year. This means that the highest level since mid-2019 is reached in January. In the meantime, the interest rates are significantly below this limit. Some borrowers with a good credit rating had to pay only o.5 percent interest. Currently, interest rates for loans with 20-year fixed interest rates average 1.4 percent. In the decade comparison this is still favorable though. However, there are increasing signs that further interest rate increases are on the horizon. In order to keep the monthly charges within limits, some prospective borrowers consider lowering the repayment rate for this reason. But is this a good idea?

One indicator of the interest rate turnaround: the yield on ten-year federal bonds

Mortgage rates are closely tied to mortgage bond rates. These, in turn, move in tandem with federal bond yields. Rising bond yields therefore usually also lead to higher construction interest rates. As a guideline, the interest rate for a loan with a ten-year term develops parallel to the yield of the ten-year federal bond – plus 1 percent. As crestfinanz reported in the current newsletter, last week was the first time in almost two years, the ten-year federal bond with a positive interest rate was traded. At the peak, the bond rose to 0.0006%.

As we had already explained in our interest rate comparison interest rate commentary 2022, an increase in interest rates is to be expected in the coming months. However, this is no reason to make a hasty and ill-considered decision, as the expected rise in interest rates will most likely be moderate. Interest rates for a construction loan with a ten-year fixed interest rate are expected to rise to between 1.5 and 1.75 percent during the course of the year. Nevertheless, the level remains low in a historical comparison, because ten years ago interest rates of more than 3 percent were common – and were already considered very favorable at that time.

The USDA loan is part of a government-backed loan program that offers 100 percent financing to eligible borrowers. The USDA loan is guaranteed by the U.S. Department of Agriculture (USDA) but offered through private mortgage lenders and helps low- to moderate-income homebuyers purchase homes in rural areas.

One misconception is that the USDA loan, also called the Single-Family Housing Guaranteed Loan, is only for farmers and ranch owners. Fortunately, that’s not the case.

Don’t rule out the USDA loan until you’ve taken a look at the eligible locations. There are USDA loan qualifying locations near metropolitan areas in the mid-Atlantic region.

In view of the rise in construction prices, do-it-yourself seems like a good idea to many builders or renovators. However, strength, time, skill and know-how need to be correctly assessed. Do-it-yourself projects not only cost a lot of time, they also have to fit exactly into the construction schedule, especially in the case of a turnkey new building. If the subsequent work cannot be continued because of damage or delays, the house builder is liable. If construction progress is impeded, contractual penalties may be incurred. Particularly in the case of a new building, it is therefore advisable to list exactly which work the builder wants to carry out himself and to record this in the contract. In this way, the interfaces between outside and in-house work can also be precisely defined in terms of organization and timing. It can make sense to have experts take over the construction supervision of the work done by the customer in order to avoid construction defects later on and to avoid being stuck with the costs of damage – for example, if experts have to carry out subsequent improvements. This could quickly wipe out the savings.

In order to avoid such interface and liability problems, property developers often only permit own work at the end of a construction project.

What kind of work can be done

Money can be saved especially on services that involve a relatively high proportion of labor, such as drywall, painting, wallpapering or gardening work, or the laying of floor coverings. As the prices of building materials have risen significantly, the potential for savings is no longer as great, because the materials portion is higher compared to the labor costs. It should also be borne in mind that professionals can sometimes buy on better terms, know exactly which building materials are suitable, and are faster thanks to their experience. According to the Association of Private Building Owners, amateurs can achieve a maximum of two-thirds of the work of a professional in the same amount of time. In addition, the time needed to travel to and from the construction site, to obtain the necessary building materials and tools and v perhaps also a DIY course must be included in the calculation.

The state supports savers who take out a Riester pension by means of a basic allowance, a child allowance and, if applicable, a tax credit. through tax advantages.

In order for the allowances to be paid out in full, the owner of the Riester pension contract must pay in a fixed proportion of his or her previous year's income subject to social insurance contributions as a savings amount each year. The amount to be saved is currently 4%. From the start of the pension, the saver receives a monthly pension paid for life. The exact amount of regular pension payments depends in particular on the contributions paid in, the chosen form of investment and the amount of the state allowances.

All or part of the subsidized capital can be used to build or buy real estate and repay loans under the "Wohn-Riester" program. The prerequisite here is that the home is owner-occupied. With the exception of a 30% one-time payment upon retirement, the capital once paid in can only be withdrawn early if the government subsidy is largely repaid.

The tax return is a must in Switzerland year after year. Every adult resident in Switzerland is required to file a tax return. It is a troublesome subject, but it can also be useful, because you can get money back. You can do this if you deduct various expenses for tax purposes. It is important that you know what you can claim for tax purposes and up to what amount this is possible. In the individual cantons, the regulations may differ in detail. This also applies if you file your tax return online.

Making insurance premiums tax deductible

Insurance makes sense, as it protects against high costs in the event of a claim. You can declare various insurance premiums in your tax return. However, this is not possible with all insurances.

Health insurance and medical treatments are tax deductible

Nothing works without health insurance. Therefore, you can also deduct insurance premiums for tax purposes. A tax claim for health insurance premiums is possible after deducting the premium reduction and any reimbursements.

There are several things that affect the rejection of loan applications, both at banks and other financial institutions. Before making a loan, make sure you have a good credit score. The credit score itself is a measure of whether a person's loan application deserves to be accepted or rejected. The lower the credit score, the higher the risk that the person will default.

Then, is there a way to improve credit scores? Here, the BFI Finance team provides ways that you can apply to increase your credit score.

What is Credit Score

A credit score is a scoring system used to determine the feasibility of whether a prospective debtor can be given credit facilities or not. A valid credit score can be accessed through the OJK SLIK service. Later, the debtor will get one of five credit scores based on his financial transaction history. If the debtor has a bad credit score, it is likely that the loan or credit application will be rejected by the creditor. On the other hand, if the debtor has a good credit score, there is a high chance that the credit application or loan can be accepted.

A home is the best investment you can make, and the prospect of paying off your home loan quickly and obtaining complete ownership of your home can be tempting on both a personal and professional level.

But is it in your long-term interests to do so?? There are pros and cons to paying off your mortgage early. We explain this in more detail.

Disadvantages of paying off your mortgage early

• It makes more sense to pay off other loans early.
• You lose a source of funds (such as access bonds).
• You may end up owning a home but being unable to afford maintenance.
• You're putting your eggs in one basket rather than diversifying your investment portfolio.
• Tax implications.

Why it makes more sense to pay off other loans first

Tenants pay an average of 8 to 9 billion Swiss francs more than property owners each year. Calculated on a monthly basis, this amounts to between CHF 130 and CHF 730, depending on the amount of the mortgage and the size of the property. This means that owners save between 1,600 and 8,800 francs each year compared to tenants.

Due to the extremely favorable mortgage rates, homeowners have been benefiting for several years now. Although it is generally the case that when mortgage rates fall, the reference rate for rents also falls, this does not fall nearly as quickly as the mortgage rate. The result: owners benefit more than tenants.

However, the low mortgage interest rates are not the only reason why owners are better off. The option of not having to pay off the first mortgage and thus being able to deduct debt interest from taxes for decades provides another advantage on the part of owners. For many Swiss people, owning their own home is a great dream in life, which not everyone can afford for a long time now. The reason for this is the sharp rise in property prices in recent years. According to a study by moneycab.com, two thirds of all Swiss are now excluded from the Swiss real estate market.

Idaho Housing is a HUD-approved housing counseling agency. IHFA's housing counselors conduct confidential interviews to discuss clients' housing needs and help them find the right resources. Housing counselors help in a variety of situations, including:

• Identify resources and solutions to housing problems;
• Provide information on housing resources, rights and responsibilities;
• Provide financial planning tools;
• Review credit reports and assist with a debt reduction plan;
• Develop a budget taking into account home ownership;
• Apply for housing assistance;
• Prioritize and budget for housing stability;
• Help in identifying utility maintenance solutions;
• Providing referrals to Idaho Legal Aid for landlord / tenant issues.

Housing counselors do not offer financial assistance, but may be able to help determine the best way to address your housing problems. If you are having trouble paying your mortgage or rent, the best thing you can do is contact your lender or landlord right away and ask about your payment options.

Pre-purchase counseling

Thousands of families across the country have used a HUD-approved pre-purchase counselor to plan and budget for the purchase of their next home. At Idaho Housing, our pre-purchase counselors can guide you through the home buying process and help you determine the right time to buy based on your personal financial situation. Counseled clients 42% more likely to buy a home that is affordable for the long term and less likely to default or foreclose on their payments.