The financial question: The easy credit is the best foundation of a home

As merely fund the cottage in the country? Private individuals should not get involved in loans for owner-occupied properties on experiments and prefer simple or solid solutions.

The interest on home equity loans has reached a level that seemed unimaginable five years ago. At the time, cost loan with a fixed interest rate of five years, about 4.8 percent per year. The current figure is 1.8 percent annually. Mortgages with a duration of ten years proposed 5 percent per year to book. Currently, the rates are at 2.4 percent annually. Loans with a fixed interest rate of 15 years were offered for 5.2 percent per year. Now 2.9 percent required annually. These are huge differences and for many people the invitation to indulge in private homes on credit. The low-interest rates are associated with the risk of losing the pitfalls of debt from the eye. This is evident in the following example.

A young married couple who are both partners in mid-30 has 50,000 euros in the account. The capital will be the foundation for a home purchase, which costs about 300,000 euros including transaction costs. Consequently, a credit of 250,000 euros is necessary. The offer of the bank consists of two blocks. In the first mortgage 150,000 euros.
The interest rate is 3 percent per year and is 15 years. to be repaid the debt of 1 percent annually. The Bank estimates that the effective interest rate of 3.04 percent per year. The second credit is over 100,000 euros. Here is a nominal interest rate of 2.5 percent per year is offered. He should apply ten years and repayment is set at 2 percent. The effective cost of this component should be 2.53 percent.

From a loan is an “eternal debt”

The offers may be safe and sound, but appearances are deceiving. The two effective interest rates provide guidance when it comes to comparing offers from the competition, but the design of financing is a tragedy. This is not reflected in the effective interest rates. Here the state does not help, there is no lender aside, here helps only common sense. The financing consists of two loans that will not have been repaid by the end of the fixed interest rates. Consequently, in both contracts, interest risks will emerge.

The follow-up costs, when the fixed interest rate will be over, rise, depending on the market or fall. While this is old hat to any person skilled in the art. Only the consequences of many private citizens are not aware because the dangers lie in the future and are hidden from consciousness.

In this case, the first risk looming in ten years. The outstanding balance of the loan will stand at 77,000 euros. If the start rate is maintained of 375 euros, the loan will run for a connecting rate of 2.5 percent still for 22 years. In a subsequent interest rate of 3.5 percent, the remaining term climbs to 26 years and with a Prolongationszins of 4.5 percent, the remaining debt will be the earliest in 33 years from the table. Consequently, the couple would be busy until the end of working life with the repayment of debt.

Even worse the situation with the mortgage will be. Here, although there 15 years absolute quiet at the front. but after that arises in connection with this agreement, the question of how it will continue. The remaining debt will stand at 122,000 euros, and the couple will be old by 50 years. Everything remains the same, the remaining term of the loan will amount to around 31 years. If the connection rate climbed to 4 percent, the repayment will take 42 years, and if the extension will cost a nominal 5 percent, the monthly rate of 500 euros not even enough to pay the nominal interest rate. Consequently, a is from lending “eternal” debt that rises again from year to year.