The Family Mortgage – Low-cost financing for families
With the elimination of the homeownership subsidy in construction and real estate financing, it has become more difficult for young families to obtain a low-interest loan. The elimination of the government subsidy via the homeowner's allowance is only offset if a riester subsidized loan is used to finance it. Young families not only receive the government subsidy to which they are entitled when they use housing riester loans, but an allowance is also made for each child. With the elimination of the homeowner's allowance and the associated restriction of government funding options, lending institutions have launched a still fairly new form of loan for construction and real estate financing. The loans, designed specifically for young families with children, are marketed under the product name Family Mortgage. The high-cost financing alternative can be applied for to purchase owner-occupied housing or to implement a construction project with the purpose of creating housing. The family mortgage can only be applied for if the property being financed is owner-occupied. The family mortgage cannot be used for rental properties or mixed-use properties. There are only a few providers that can be considered as lenders for family mortgages at the moment. Also the Kreditanstalt fur Wiederaufbau offers subsidized loans with their programs KfW 124 and KfW 153 and can offer a favorable alternative. The use of a construction loan broker and its brokerage services associated with the assignment are usually free of charge and can provide a financing solution that fits individual needs. All family mortgages offered by different lenders for construction and real estate financing are, in essence, an annuity loan. The annuity loan is usually secured by the registration of a land charge.
Advantages and disadvantages of the family mortgage
Like any form of construction financing, financing through a family mortgage has its own advantages and disadvantages. The favorable conditions offered by the lenders for families with children are fixed and can generally no longer be renegotiated. Basically, families receive a discount on the original loan interest rate. Borrowers with a child benefit receive a discount on the originally demanded interest rate for a fixed period of time. In some cases, the lender here sets a maximum amount for claiming the discounted interest rate. If the financing requirement here is higher, part of the loan is financed via the favorable family mortgage and the other part via a customary interest-bearing annuity loan. Despite the restrictions in the granting of the interest discount, the use of a family mortgage usually represents the more favorable option in terms of conditions. Especially families with one or more children can benefit here. The family mortgage corresponds to the familiar fixed-rate loans. Therefore, for this type of loan a fixed interest rate is agreed over several years. This is usually significantly lower than the market interest rates and is reduced by the discount. The repayment of a family mortgage is annuity-based. The borrower pays a constant installment, which is made up of the interest portion and the repayment portion. Since the interest component is low from the beginning, the repayment component increases very quickly and significantly. With a family mortgage there is therefore a comparatively lower residual debt at the end of the first fixed-interest period.
The family mortgage is a fairly new form of loan and since the abolition of the homeowner's allowance has offered a low-cost alternative.
– Significant interest rate advantage for families with children
– Loan repayment is analogous to the fixed-interest loan
– Only available for owner-occupied and owner-occupied properties
– Provider-dependent restriction on the use of available conditions
– High repayment rate due to low interest rate component
– Multi-year fixed interest rate and constant loan charge