Construction financing comparison

adminonJanuary 17, 2023February 19, 2023Leave a Comment

Not all construction loans are the same. Even in times of low interest rates, customers should not forego the most accurate possible comparison of providers and offers for real estate financing. Construction financing is a very long-term contract whose term can extend over several decades. So it's not something you can just do on the side, even if interest rates are at an all-time low.

Interest rates on a downward slide

The ongoing financial and debt crisis also has its good sides. This applies at least to prospective builders and their house financing. Due to the low key interest rates of the European Central Bank, mortgage interest rates are still at a level of around 3% based on a term of 10 years. Financing of less than 50% of the total investment amount even settles well below this mark for the same term. This is the best way to start building or purchasing a home as soon as possible.

Well bound – much saved

Particularly important in such times are as long as possible fixed interest periods. Loans with 15 years term can be requested already with interest rates of only little more than 3%. This not only grants builders comparatively favorable construction financing, but also a high degree of planning and calculation security with regard to their own budget. For comparison: Who decided in the middle of the 90's for a real estate financing, was allowed to rake up still up to three times the value of interest with these running times. Also still longer terms of up to 20 years can be worthwhile at present still. And despite the binding to the debit interest rate, it is still possible to cancel the construction loan after the 10. Year with six-month period of notice in whole or in part to terminate. High interest phases can be avoided thus in view of the follow-up financing in this way skillfully. Either a more favorable interest rate is found or it is financed evenly with the old one further.

On this should be paid attention also with comparisons for the house financing, because only relatively few offerers offer Zinsbindungsfristen of 15 to 20 years. However, the interest rate itself should not be lost sight of, because the differences can be up to 1% from provider to provider. What may seem little at first, adds up to considerable sums over the years. Over a term of 15 years and with a loan amount of 100.000 euros can make choosing the right provider 15.000 to 20.000 euros in savings.

Real estate credit – also on the Tiilgung pay attention

The move into your own four walls leads in most cases via a real estate loan. When comparing, builders and real estate buyers primarily pay attention to the APR and overlook the amount of repayment. However, this has a direct impact on the length of the term and should therefore be taken into consideration.

Compare real estate loans correctly

Anyone comparing several financing offers should always include the amount of repayment in the comparison. Who compares only the effective annual interest as well as the height of the monthly rate, which receives thereby no information about the real quality of a credit offer. Thus, the possibility of unscheduled repayments is often stipulated in a home loan, but not the chance to change the repayment percentage during the term of the loan. This is primarily due to the fact that the repayment portion automatically increases with an annuity loan with continuous repayment, while the interest portion is reduced accordingly. The higher the repayment portion is selected at the beginning of the construction loan, the faster the real estate loan is paid off, without taking into account unscheduled repayments. So if you want to be debt-free faster, you need to set a correspondingly high repayment rate. Provided, of course, that this fits into the financial framework of the financing. With an interest rate of 5 percent and a repayment of 2 percent, the loan will be paid off after about 25 years. If an amortization rate of 3 percent is selected, then one is debt-free after only about 19 years.

The thing with unscheduled repayments

If there is the possibility of special repayments, then this should be used in each case also. The prerequisite for this is, of course, that this option was agreed with the bank when the loan was taken out. Most banks offer unscheduled repayments of between 5 and 10 percent of the loan amount. For example, an inheritance or a maturing savings contract can be used to reduce the loan debt. Although this does not lead to a reduction in the monthly installments, the loan is repaid sooner instead. Before borrowers decide to make an unscheduled repayment, it is worth comparing the return options for financial investments. Unscheduled repayment is especially worthwhile when interest rates on the construction loan are higher than a potential return on investing the amount available for repayment. Because it makes little sense to invest money for an interest rate of 3.5 percent, while at the same time paying 4.5 percent interest on your real estate loan. In addition, some banks require a surcharge at the conclusion of the loan, in the event that an option for unscheduled repayments is agreed in the loan agreement. If this is not claimed, the premium was paid in vain.

House financing

The desire to own your own home can quickly become a reality these days. Even though construction financing is a large investment, you can make significant savings of several thousand dollars by comparing construction loan interest rates.

Find favorable house financing by a comparison

Rarely can builders provide the financial resources in one sum for the construction or. Raise the purchase of the property and are thus dependent on home financing. Particularly good conditions for your home financing can now be found on the Internet. Here can be objectively and quickly comparisons to the different offers not only create, but also retrieve, so that you are spared a time-consuming search. Beyond that not rarely the costs are substantially lower for a construction financing in the Internet.

If you have found out the necessary key data such as the loan amount, the term, flexibility options and repayment rate according to your personal assets and income, you should start an inquiry to preferably several lenders. The more details you provide when inquiring about your desired real estate loan, the easier it will be for you to compare building loans.

As a rule, the so-called direct banks offer far better conditions compared to the traditional house bank because online banks have neither a branch network nor expensive customer service representatives. Because one aspect that should not be underestimated is the small differences, whether in the possibility of unscheduled repayment or the interest rates, which ultimately make themselves felt in the overall financial burden. And this in turn results from the relatively high loan amount and the often long terms, which can be between 5 and 30 years.

The credit forms of the house financing

If you as a borrower would like to have as secure a plan as possible, then you should prefer an annuity loan with a fixed debit interest rate, in which you always repay consistently high installments over a certain term. Another and very often used form of financing is the building society loan, the financing by means of an annuity or a pension plan. Life insurance as well as the financing protection letter. If you would also like to protect your family from financial consequences in the event of an unforeseen event, you should take out an additional life insurance policy, or at least term life insurance.

Real estate financing

The building interest rates are extremely attractive in view of the historical interest rate lows. Therefore, long-term loans can currently be concluded at extremely favorable interest rates, which have relatively long fixed interest periods. For this reason, the total financial burden for real estate is also suitable for all those who have a moderate income level.

Realize the real estate financing now

Even if the interest rates for the construction loan are currently very attractive, a development may already occur in the near future, which then justifies an interest rate adjustment upward again quite already from an inflationary point of view. If you would like to realize thus your dream of the own house or the desire project, then according to expert opinion now the correct time would be due to the favorable conditions presupposed naturally the conditions are correct such as income situation, self capital portion, object price etc. But even if the conditions are still so good, it is always worth an offer comparison to save interest on a construction loan.

Real estate financing: The comparison always pays off

Hardly any builder is in the financial position to pay the sum for the purchase or construction of a property completely and immediately. Rather, many are confronted with high debts on the way to their own four walls. And nevertheless the dream of the own house can be realized with a prudent and well thought out planning with the house financing.

If you also belong to the laymen who are initially uncertain and are also dealing with the topic of construction loans for the first time, then you should first determine your financial situation and find out whether you can afford your project of owning your own home at all. However, you do not have to determine the equity portion, but the monthly financial burdens that are coming to you.

At the latest at this point the bank will play a significant role. But beware: generally get several offers from credit institutions for your home financing and also subject to the respective conditions such as initial repayment, interest rate, interest rate lock etc. an objective comparison. Because a comparison is very important for you as a future borrower even if this takes some time. Because should you miscalculate with construction financing not only the real estate financing can fail, but in the worst case even the forced sale of your real estate threaten. Only if you make a careful comparison, you will find a perfectly tailored home financing, which meets your individual needs and especially your financial circumstances.

Building loan

If you decide to build a house, the easiest way to finance this is through a construction loan. However, before taking out such a special-purpose loan, you should inform yourself comprehensively about which of the various options exist in the field of construction loans and real estate financing and which form of financing offers the most suitable framework for your individual plans and needs.

It is better to be too generous than too tight with the amount of credit you need

First of all, before taking out a construction loan, you should carefully analyze your own income situation. Thus the repayment of the credit rates may never affect the own standard of living in negative regard, but with the monthly income reserves can be served. Before signing the contract, it is also important to consider whether you can continue to service the loan in the event of offspring or a change of job, so that in the event of family or career changes, you do not run into financial difficulties due to a construction loan that may be too high in terms of rates. It is also important that you always keep a certain reserve, regardless of the credit line, in order to be able to pay for additional costs associated with the purchased property, such as repairs or purchases, out of your own pocket in case of emergency, without additional burdens. In order not to worry much about the ongoing ancillary costs of your own property, you should therefore, in addition to repaying the actual construction loan, always make sure to invest certain savings for a specific purpose. So that you can also experience a perfect move-in when buying a house, you should always make sure that not only the purchase price for the property and the land is secured for you with the conclusion of a house financing, but also that all basic equipment of the house can be realized before moving in, such as flooring, sanitary facilities, kitchen, fireplace, etc. Therefore, both before buying a house and before taking out a loan, you should be clear about what costs are necessary for the actual purchase of real estate and what costs are necessary to ensure that a house is ready for occupancy. The rule of thumb is that you should always calculate higher before the intended credit volume is not sufficient. Also various items such as property tax, municipal property taxes, groundwater tax, fees for notaries, etc. should be taken into account when choosing a loan, so that you do not have to save on the things of everyday life.

Select the appropriate term with the appropriate repayment modality

Of course, the term of the construction loan is just as important as the actual loan amount. Thus, it is always recommended that you choose a credit line so that you are preferably at the beginning of retirement age debt-free and then also fully enjoy the benefits of owning a property without any remaining debt. For this, you can choose between different models when comparing different types of construction financing, which are mostly adapted to your very individual needs and financial possibilities in terms of variation and flexibility in repayment progressions.

Also a credit comparison for small amounts such as for a 500 euro loan, 1000 euro loan, 5000 euro loan, 10000 euro loan or for a 50000 euro loan is worthwhile. For customers with creditworthiness problems, there is also a solution through a loan without Schufa.

63% of respondents think it is unfair if part of the performance or interest of their BVG pension account is used for the pension benefit of the current generation of pensioners. (Image: ZVG)

The occupational pension plan from the 2. Pillar is the most important component of retirement income for many people. But their importance is underestimated. This has consequences, as a recent study by Zurich Switzerland and Vita shows.

For most of us, occupational pension plans (BVG) represent an important part of our personal assets and a large share of our income in old age. Because there, every working person saves, on a collective basis, but for their own pension. But a majority of the population does not know this, according to an important result of the current "Fairplay" study: For the second time, Vita Sammelstiftungen and Zurich Insurance Company, together with the research institute Sotomo, have arranged a representative survey of 1,600 people.

Half perceive LOB contributions as a fee or tax

According to the authors, one indication from the first study was clearly confirmed: Because BVG contributions are deducted directly from wages, many people see them as a kind of tax or levy. Although BVG payroll deductions are paid into personal retirement accounts, only 47% of working people perceive them as an investment in their own retirement capital. 28% see it as a kind of tax ("contribution to safeguarding pensions in Switzerland") and 21% consider it a fee that has to be paid. But this ignorance weakens the basic idea of occupational pension provision as saving for one's own old age. This is also unfortunate for employers, they say. After all, they finance at least half of our contributions. "Employees can only be aware of this benefit if they recognize in the BVG an investment for their own old age", conclude the experts.

Redistribution is considered unfair by the majority

In the 2. Pillar there is a great need for reform. Today, about half of the investment income of the working population is used to finance current pensions, which is not intended in the system. But according to the study, only one-third of respondents are aware of this redistribution. Therefore, the contributing workers among the respondents were educated about this redistribution. They were then asked: "Do you think it's unfair if part of the performance or return of a fixed-term deposit account is not paid out?. of the interest on your BVG pension account is used for the pension benefits of the current generation of retirees?" According to this information, 63% of these respondents found it unfair to.

Promoting understanding, making connections recognizable

"It is worrying when the majority of working people do not understand why they are paying contributions into the 2. Pillar pays in – and what happens to that money. After all, anyone who wants to take responsibility for shaping his or her own future needs a basic understanding of the interrelationships in the Swiss pension system to do so. That's why it's important to promote financial literacy on many levels: In schools, at work, and through the media. Pension fund managers in companies in particular have a duty to act here. Its responsibility is to optimize its facilities so that it can resume its role as 'third contributor' to the best of its ability", comment the study authors.

Financial literacy promotes understanding of LOB

Another finding: "There is a very strong correlation between knowledge about investments and knowledge about one's own pension situation. Those who are well versed in financial products and investments are usually also well informed about their own pension situation in the 2. Pillar well informed. This means that if you want to raise awareness of the importance of the 2. If a company wants to awaken the interest in the 2nd pillar, it must invest in the general financial and investment knowledge of the population."

Knowledge helps, especially in pension provision

It is doubly worthwhile to promote financial knowledge among the population: On the one hand, knowledge helps people make competent decisions related to their occupational pensions. On the other hand, this is also important for private provision and investment, according to another result of the "Fairplay" study. 77% of respondents save if they have money left over at the end of the month. However, most of them deposit it in a savings account out of ignorance, giving away massive potential returns.

Ignorance makes fearful

Because of the lack of knowledge, many people are suspicious of financial markets and their risks, the study authors said. But fear is a bad advisor. Those who invest with a cool head know that this will most likely pay off in the long term: A look at the U.S. stock markets showed that even with an investment horizon of ten years, 95% of the time a positive return is achieved. With an investment horizon of 15 years, the probability is even higher.

Diversification, patience and discipline

"The same rules of the game apply in private as for institutional investors in pension funds: A long breath pays off, because in the long run, the compound interest effect plays out particularly clearly. Diversification is match critical so that crises in certain regions or industries don't jeopardize the entire portfolio", the experts emphasize. And finally, discipline is needed in implementation in order to make the most of added value, true to the advertising slogan of the Vita life insurance company in 1932: "Save right, it matters."

Senior citizens in Germany have a lot to spare, especially the formerly self-employed and senior civil servants do not have to live in poverty in old age. While entrepreneurs often have to live off their savings in retirement, other senior citizens can leave their assets largely untouched.

Germans have made provisions for old age – mostly in the form of residential property, securities, life insurance and savings deposits. At least, that's what a look at the assets of the population beyond the legal retirement age shows. Even among unskilled workers, each retiree has an average net worth of 67.000 euros, although there are large deviations upwards and downwards.

Higher qualifications in working life, higher wealth in old age

For all working groups, the rule of thumb is: the higher the qualification and function during working life, the higher the wealth in old age. Former senior executives, for example, have an average pension of almost 177.000 euros – higher assets are found among ex-civil servants in the upper and higher civil service, lower among civil servants in the lower and middle civil service.

The group of over 65-year-old entrepreneurs has the highest assets – in 2012, the average was just under 330.000 euros.

Nevertheless, there is no reason for social envy. On the one hand, entrepreneurs often run their companies according to their 65th percentile. Birthday continues – and since the business assets are included in the statistics, these entrepreneurs differ significantly from their peers who are already retired. In addition, most self-employed persons are not covered by the statutory pension scheme, but have to organize their retirement provision privately. Your reserves are therefore used for retirement provision.

Considering that after 45 years of contributions, the average wage earner in West Germany currently pays 1.287 euros and 1.If an entrepreneur receives EUR 187 from the pension insurance fund in the new federal states – for the rest of his or her life – then the entrepreneurs' reserves become relative.

The fact that assets serve as a personal retirement fund for the self-employed becomes even clearer when one looks at the development of net assets over a lifetime. Accordingly, the self-employed build up the highest net worth by the time they reach the standard retirement age – the median reaches almost 250.000 euros. This is more than twice as much as for a senior executive. Beyond the age of 65, however, the assets of ex-entrepreneurs dwindle much faster: in the first decade of retirement, the assets of a former entrepreneur are reduced by a whopping 70.000 euros, but that of a department head only by 7.000 euros.

In contrast, assets tend to be preserved in old age among the self-employed without employees. One reason is that this group also includes those freelancers who are covered by a professional pension scheme. As a result, they have to rely less on non-cash and cash assets in old age to cover their living expenses. This applies, for example, to lawyers and doctors.

Retirees who have worked in the higher civil service can likewise maintain their comfortable asset position in most cases, while former civil servants in the lower and middle civil service are much more likely to have to go down to the wire. A similar picture emerges for skilled workers. The less prominent the occupational status in working life, the more the assets will dwindle in old age – for example, because a smaller pension will not be enough to maintain the standard of living.

As part of the Socioeconomic Panel, households are surveyed in detail about their assets every five years, most recently for 2012. The IW researchers added up the data on business assets, real estate assets, life insurance policies, financial investments and account balances for each household. Net wealth per adult is obtained by offsetting mortgages and consumer loans and dividing the result by the number of adult household members.

Whether the people with their net worth belong to the group of civil servants, employees or self-employed depends on the employment status of the head of the household – that is the household member with the highest contribution to the joint income. In the case of retirees, this assignment is made according to the most frequent or last employment status.

In addition to the average assets, the median is also reported in many cases. All assets in the respective groups are sorted in ascending order – the value right in the middle then serves as the reference value. This makes sense for the breakdown by age groups and labor force groups, because it makes the number of cases smaller and the average value distorted by outliers.