The most important basic terms of construction financing

Anyone considering real estate financing for the first time should know the most important basic concepts of construction financing even before the initial discussions with the bank or online financing broker. This includes the different types of interest rate as well as questions of repayment, fixed interest rate and residual debt. Of course, equity share and incidental acquisition costs are equally among important vocabulary for contract negotiations. Because these basic terms of the construction financing define finally, how surely, favorably and flexibly you finance over the entire term up to the debt freedom.

The most important basic terms of construction financing: effective annual interest rate, nominal interest rate, debit interest rate

The older ones still know the terms effective interest rate and nominal interest rate. In the past, this distinction was made to show the difference in interest rates during the year. Yet the effective interest rate has always been higher than the nominal interest rate. Since 2010, the Consumer Credit Directive replaced the nominal interest rate with the borrowing rate. Since then, the nominal interest rate no longer plays a role.

The debit interest rate indicates the percentage that is charged per year from the loan. The effective interest rate, on the other hand, includes other costs such as z. B. the costs charged by the bank for the valuation and collateralization of the property.Another difference is also that the effective interest rate is calculated over the total term of the loan. For this, the bank already determines at the beginning of the financing with which interest rate it will charge after expiration of the term-linked construction financing loan (z. B. for the later prolongation – the then subsequent 2. Construction financing loan) further calculates. If it selects a low debit interest, sinks also it indicated effective annual interest rate.

This makes it more difficult for the consumer, because the interest information has become more confusing. As a criterion for comparing real estate loan offers, the annual effective interest rate is only suitable to a limited extent because the calculation methods of the banks differ. That's the reason many home loan brokers have moved to quoting a comparative interest rate. This refers then always to the contractually fixed the duration of the construction financing contract – thus the so-called debit interest commitment.

Fixed interest rate, fixed interest period, residual debt, prolongation and follow-up financing

The term of the debit interest commitment resp. Interest rate lock-in period refers to the contractual loan period during which the interest rate is in effect. In the case of initial financing, a fixed interest rate is agreed with the bank for the contractually fixed duration of the agreement. B. 5, 10 or 20 years) is fixed.

In the vast majority of cases, a construction financing loan is not yet fully repaid after the end of the initial contract. The amount still outstanding at that point or. The amount that has not yet been repaid is called the residual debt. This remaining debt is then refinanced as a rollover (if you continue to finance the loan with the initial financing bank) or as a follow-on financing (if you switch providers) with a new construction loan.

The shorter the fixed-rate period, the better the interest rate offered by the bank. However, it must be remembered that then – z. B. after 5 years – interest rates may have risen, making follow-up financing correspondingly more expensive. Therefore, especially in times of low interest rates, a rather long-term debit interest commitment is preferred. A long fixed interest rate period costs a little more, but lowers the risk due to rising interest rates in the future.

Repayment rate, initial repayment and unscheduled repayment

The repayment rate decides how fast you are debt free. While the interest is exactly the fees that you pay to the bank for the loan, the repayment rate indicates the percentage value with which you actually repay the Kreidt. The most commonly chosen form of loan – the annuity loan – requires you to make monthly repayments that are always constant during the term of the loan. The interesting side effect: Since the residual debt is reduced by the monthly repayment and thus the monthly interest payments are also less, the monthly repayment increases at the same time – i.e. loan repayment within the framework of the monthly constant rate.

That is why the initial repayment is one of the most essential basic terms of construction financing. Because with the initial repayment you determine the repayment rate that you pay at the start of financing.

No-cost unscheduled repayment and no-cost extended unscheduled repayment rights

Also an essential factor: the unscheduled repayment. Make special repayments to speed up loan repayment. A distinction must be made between unscheduled repayment rights that are free of charge and those that are subject to a charge: Banks often offer free unscheduled repayment rights of 5 percent – in exceptional cases up to 10 percent – of the initial loan amount.So if you have more money available during the term of the loan due to an inheritance, gift, salary increases or bonuses, you pay an additional repayment amount that reduces your remaining debt. The good thing is that a no-cost unscheduled repayment right is an "optional clause," d. h. You can use them, but you do not have to.

Extended unscheduled repayment rights are paid for by banks in the form of interest surcharges. In this case, you must be sure to take advantage of the extended Sonbdergungsrecht during the term of the loan.

In all cases, it is important to approach the bank in the initial discussions about free unscheduled repayment options, because not all banks offer them by themselves. A possibility of free unscheduled repayment is an excellent option to be debt-free faster. And quickly get out of debt, saves the most money on financing.

Basic construction financing terms for certainty and flexibility: amortization adjustment, rate adjustment, and rate suspension

For those who want to be on the safe side, a contractually agreed repayment adjustment or repayment suspension is a good option. If you have had the repayment suspension or adjustment included in the contract, you can also suspend repayment for several months, thus reducing the monthly installment and giving yourself financial leeway. Whether he repayment suspension is granted free of charge or with an interest surcharge is a matter of negotiation.

But even without a suspension of repayment in the contract, in case of illness or temporary unemployment +a suspension of repayment is possible even without a contractual provision. However, it is important that you inform the bank immediately after entry. For a repayment suspension after the fact, some banks charge additional fees. Most importantly, if this happens, you need to contact your bank immediately. Because any bank has the right to terminate the loan if two installments and 2.5 percent of the loan amount is not paid on time.

These basic terms of construction financing will help you to go well armed to the credit talks

Another good option is to obtain information and advice from experienced online mortgage brokers such as accedo AG. Thus, the accedo offers its services completely free of charge and accompanies you from start to finish through the selection process to the construction financing loan.

The amortization schedule is the most important roadmap for a secure initial and subsequent financing. Repayment and residual debt are the most important parameters.