Who thinks now of the building of houses or the purchase of a real estate, should secure itself low building interest rates. Experts advise fixing the interest rate for as long as possible, as this provides planning security. However, it may be worthwhile to set the interest for a shorter period of time.
Take advantage of low construction interest rates
Interest rates for mortgage loans have fallen to record lows. If one wants to take out a mortgage loan, it does not matter whether one sets only a short-term or a longer-term fixed-interest period. With a fixed interest rate of 10 years, borrowers have to pay about 2.3 percent interest, according to an index by FMH-Finanzberatung. This index was calculated from information provided by 40 financial institutions and intermediaries.
Just one year ago, the interest rate averaged 3 percent, which was already considered historically favorable. Within 20 years, a historic high of almost 9 percent was recorded in 1994. Max autumn of the FMH Finanzberatung assumes the uncertainty at the capital market as cause for the decrease of the building interest rates.
A crisis in the financial market is advantageous for those who want to apply for a mortgage loan. Investors are looking for security, which leads to an increase in the price of federal bonds and Pfandbriefe and has a negative impact on yields. For ten-year federal bonds, the yield is currently 1.4 percent. In 2012, a record low of 1.127 percent was recorded. Yields on the mortgage bond market have an impact on construction interest rates.
What to consider in the face of low interest rates in construction financing
Michael Goris, CEO of Interhyp, the intermediary of private construction financing, advises borrowers to consider a number of things in order to still be able to pay the installments after an interest rate increase. To avoid overstretching themselves, those interested in taking out a mortgage loan should calculate carefully.
If you bring a lot of equity into the financing, you usually get more favorable conditions from the banks. With the current interest rate situation, it makes sense to include 20 percent or more equity in the financing. This makes a loan to value of the property of 80 percent. For the monthly rates one should not set more than 30 or 40 per cent of the net income.
With long fixed-interest periods, builders can secure favorable interest rates in the long term, if possible over a period of 15 to 20 years. For a fixed interest rate of 10 or 15 years, the interest rate premium is approximately between 0.5 and 0.7 percentage points.
Why short interest periods for construction loans can be worthwhile
Short fixed-interest periods can be worthwhile, especially if you expect an even more favorable interest rate trend. However, you have to give up the feeling of security in the process. With a fixed interest rate period of 5 years, you can expect an interest rate of 1.6 percent; regional providers are often more favorable than national providers.
If you value a high degree of planning security, Hannoversche Leben, for example, offers a "carefree" mortgage. In view of the low interest rate level, the repayment can be set higher, so instead of 2 percent, a repayment of 3 percent can be made. Always right are free unscheduled repayments, which should be agreed in the contract.