MORTGAGE – THE FIVE MOST IMPORTANT FACTS

MORTGAGE – THE FIVE MOST IMPORTANT FACTS
Mortgage
Owning a home can have financial benefits. At the same time, buying a property can be the most demanding financial decision. In most cases, anyone who builds or buys their own home has to take out a loan in the form of a mortgage and pay mortgage interest. You can find out which mortgages are available and which mortgage is best for you here.

What is a mortgage, and what are the requirements for taking out a mortgage?

A mortgage is a loan from a bank that is secured by a pledge. The property is pledged to the bank by the mortgagee as security. In return, they receive a loan from the bank.

Requirements for taking out a mortgage

At least 10-20% of the purchase price of the property must be financed with your own funds. Banks and other financial institutions generally only grant the highest possible loan-to-value ratio if additional collateral is pledged, such as advance inheritance payments, cash assets, private loans, but also pension funds from the 2nd or 3rd pillar.

5% portability must be guaranteed. Mortgage affordability means the burden on gross income due to all mortgage interest and amortization expenses, as well as the ongoing costs of maintaining the property. Provisions must also be considered, for example, for major modernization measures that may become due every 10-15 years. More than a third of your monthly income should not be exceeded here.

A mortgage can therefore account for up to 80-90% of the property value. It is possible to take out two mortgages:

⦁ With the 1st mortgage, you can finance a maximum of 65% to 70% of the property value, depending on the provider. You do not have to amortize this loan, so there is no term limit by when the mortgage must be repaid.
⦁ The 2nd mortgage covers the additional 10 to 15 percent of the property value if required. This mortgage must be repaid within 15 years or by the time you reach retirement age.

What types of mortgages are there?

When it comes to financing, there are three mortgage models to choose from fixed-rate mortgage, variable-rate mortgage, and LIBOR mortgage. All three models have advantages and disadvantages.

Fixed-rate Mortgage

A fixed-rate mortgage is taken out for a fixed agreed term at a fixed interest rate. The fixed interest rate gives you stability and budget security for your interest burden. The most common term is between 2 and 15 years; depending on the provider, a longer term is possible.

⦁ If mortgage interest rates rise in the market, homeowners with a fixed-rate mortgage are not affected because they pay the same interest rate until the end of the term.
⦁ If mortgage interest rates fall, property owners cannot benefit from this.

Variable Mortgage

The variable mortgage offers a flexible solution without a fixed term and can usually be terminated at six months. The interest rate of the variable mortgage is based on fluctuations in the capital market. The mortgage interest rate can therefore rise as well as fall. With a variable mortgage, you are able to switch quickly and flexibly to another mortgage model.

⦁ A flexible change to a different mortgage model is possible if a period of notice is      observed.
⦁ Save taxes through indirect amortization.
⦁ Possibility of direct amortization.
⦁ Unfavorable model with rising mortgage interest rates.

LIBOR Mortgage

The LIBOR mortgage behaves in a similar way to the variable mortgage. Here, however, the reference interest rates are only valid for one day, which is why the amount to be paid can only be calculated afterward. The term of a LIBOR mortgage is also fixed at 3 to 5 years, from which the borrower can only get out at considerable additional expense. If the property owner wants to get out of the contract before the end of the contract, he must pay a prepayment penalty pay. Before taking out a LIBOR mortgage, you should consider whether you can bear the risk of rising interest rates. It would be ideal if the LIBOR interest rates continued to fall after the contract was signed.

There is also the option of taking out a Flex mortgage. This enables the mortgagee to switch to another mortgage model offered by the respective provider for the remainder of the term of a LIBOR mortgage. This exchange option offers some protection against rising interest rates.

How to calculate a mortgage for a property?

Do you want to buy a property? To calculate the mortgage with any mortgage calculator available online, you need the purchase price of the property, your gross annual income, and your own funds. On this basis, you can calculate the resulting loan-to-value ratio, the monthly burden, and the affordability of the mortgage with the help of mortgage calculators available on the internet.

How do I renew or top up a mortgage?

Fixed-rate mortgages and LIBOR mortgages have a fixed term that is contractually regulated. As a rule, your bank advisor will contact you a few months before the end of the contract period to discuss whether to continue or even switch to a different mortgage model.
Here you should ask yourself the same questions that you asked yourself when you closed the original financing:

⦁ What is your current and future living situation? And what financial obligations will     you have or will you not have in the future?
⦁ How do you expect interest rates to develop?
⦁ Are constant outputs preferred?
⦁ What is your risk tolerance? – Falling interest rates and thus lower mortgage         
   expenses?
⦁ How do I extend a mortgage?
⦁ How can a mortgage be paid off?

How mortgages can be redeemed depends on the type of mortgage:

⦁ A fixed-rate mortgage can be terminated at the end of its term. Alternatively, you can switch to a different mortgage model. It is important to observe the notice period when changing providers.
⦁ A variable mortgage can be terminated and redeemed at any time, subject to the contractually agreed notice period.
⦁ A LIBOR mortgage can also be terminated at the end of the term. Alternatively, you can also switch to a different mortgage model.
⦁ With a Flex mortgage, you can switch to another mortgage model once for the remaining term.



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