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Variable property financing – as a clever move

As a person who wants to acquire a new home, you have two options: Either you purchase an existing property (buying a plot of land and a building) or you buy a new real estate. In case of  new construction, there are as well two opportunities: the purchase from the property developer, as part of an „all inclusive package“, or the aquisition of real estate and the subsequent construction, as two separate procedures. Often, the opportunity comes up by chance or very spontaneously. For the invester the location is the most important factor, and in case of a suitable building site you should act quickly. There may be some time between land purchase and building development. Those, who do not have enough funds to finance the property with their own resources, will need a financing at that time. The remaining topics will explain which variants are available for this and what kind of risks and opportunities arise through this.

Financing through an annuity loan

An option would be funding with a loan, through an annuity loan with a fixed-interest period  chosen by you. This kind of credit stands out by its good conditions and it also offers the advantage of securing the interest rate, in the long term.

Dependence

However, the above mentioned method of financing contains a critical issue. You may find yourself unintentionally in a dependence. How does this happen? The bank, as the financing institute, has primarily recorded a land charge in the land registry. And the loan which is needed for the property construction has to be secured by a secondary mortgage. This so-called subordinated financing is more risky for the second bank, because in case of insolvency this banking institute is not entitled to receive priority security. That is why every bank will demand compensations for taking that kind of risk, by charging higher rates. In an insolvency situation, the bank which is in charge with real estate financing shall also have the primary right to be paid out. Furthermore, this bank is aware of the fact that in terms of development financing the other banks won´t offer very good conditions. This means, the relevant bank will also charge a higher rate without turning a hair, in order to acheive a better margin. How should this dilemma be resolved?

Variable loan – at first pricey, but in the long run more benefical

In case of an ordinary loan, you depend on the bank which finances your property, because it is secured primarily and it has a fixed-interest rate term. The solution for dealing with this kind of problem is to carry out interim financing, in form of a variable loan. With a variable loan there is no interest fixing. That is to say, the variable rate will be reviewed every three month, and it will automatically adapt itself to the current interest rate market. Your interest rate may thus change positively or negatively, every three month. The disadvantage is that you do not have planning security. And because of the included flexibility, the variable rate is more expensive. However, the main advantage is that the loan can be terminated with a period of four weeks, without beeing obliged to pay penalty interest. In practice this means the following: The second bank, which allows you a credit for construction, will increase the loan amount by the outstanding debt of the property financing. Also, it will replace the first bank. And in return, the primary land charge will be deleted or it will be assigned to the second bank.

On the whole, it means that the relevant bank is recorded in the land registry in the first place, and so it will give more beneficial rates as a reward.

By choosing a variable property financing, you are completely unbound and you can use this scope of negotiation for the benefit of a favourable interest rate, which would have been impossible with another bank.

 

Do you have any more questions?

An individual consultation appointment can be arranged by contacting us:

Phone: 0721 – 56 42 42
E-Mail: info@FinanzierungsExpert.de or just use our information contact form provided on this website.

Contact us

Information about the author:

Alexandra Schneider is a certified bank business administrator and she writes about up-to-date topics, for FinanzierungsExpert.

 

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The SCHUFA – speaking of construction financing, what should you keep in mind?

Whenever you would like to build a house or buy a property and you need a financing solution for this purpose, there is no way to avoid the following institution: The SCHUFA (a protective association for public credits) is a data collection point. Informations deriving from telecommunication agreements and from the trading and financing sector are recorded there. Most of these entries refer to instalment credits, real estate loans and to current accounts. Furthermore, negative issues such as arrest warrants or inability to pay are reported and registered there. In doing so, the SCHUFA does not verify that the stored records are correctly drawn up. Negative entries have an impact on the SCHUFA scores and they affect upcoming credit decisions or condition negotiations at the banks.

What exactly is the SCHUFA score?

The SCHUFA score is an internal credit score issued by this protective association for public credits, arising from the data of which it has been notified. That kind of score is expressed in percentage and it is supposed to assist loan providers on issues relating to creditworthiness. In case of a high score value, nothing speaks against awarding a loan from the SCHUFA´s perspective. In this context, it is important to be aware of the following facts: The existence of several registered current accounts or of listed loan condition requests has already a negative impact on the SCHUFA score. Therefore, please have in mind, that less is more. If you always serve the existing instalment credits on time, nothing stands in the way of a good score value. And if you are unsure, whether there could be negative entries at the SCHUFA, you will have the opportunity to make a free retrieval at the SCHUFA, once a year. Should negative facts been listed there, you will have the option of discussing openly this issue with your agent, and in doing so, you could explain how all this happened. In case of a financing application, the banks will regard such kind of openness as positive. You don´t need to worry at all that negative records could be saved forever and ever. For each negative entry at the SCHUFA, there is a specific deletion period. Once it has expired, the respective record will no longer be evident.

It makes absolutely sense doing a checkup at the SCHUFA, from time to time, in order to make sure that entries have been erased where required, and to act quickly in case of incorrect records. Should wrong informations be registered at the SCHUFA, you have the right to have it deleted immediately. This claim must be reported at the SCHUFA without delay, in written form along with the relevant documents.

 

Do you have any more questions?

An individual consultation appointment can be arranged by contacting us:

Phone: 0721 – 56 42 42
E-Mail: info@FinanzierungsExpert.de or just use our information contact form provided on this website.

Contact us

Information about the author:

Alexandra Schneider is a certified bank business administrator and she writes about up-to-date topics, for FinanzierungsExpert.

 

 

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Follow-up financing

As soon as the fixed-interest period has expired, in most cases real estate owners need a follow-up financing. In this respect, the right time should be chosen in order to save money.

Prolongation, debt restructuring or a forward loan? There are several possibilities for arranging your follow-up financing.

Follow-up financing, what does that mean?

Should the fixed-interest period be expired, you require a follow-up financing to repay the outstanding debts. Usually three month before this period ends, the house bank will make you an offer with regard to continued financing. Obtaining offers from other suppliers is almost always worth doing.

If the general level of interest rate has risen, since the conclusion of your first loan contract, there is the risk that the future monthly charge could be significantly higher. By using a forward loan, you can secure the current interest rate level regarding your follow-up financing, namely already 36 month before.

The loan granting house bank is obliged by law to submit a proposal for following-up financing, three month before the fixed-interest period will be expired. If you don´t like the offer, you still have time to gather counteroffers, although there could be time pressure. We therefore advise you to deal with this topic several month in advance. In this case, it would be good if you come to us in time, so that we can discuss calmly your desires and ideas regarding your follow-up financing. And besides that we will review offers from other banks. As you can see, efforts will pay off.

As already mentioned, there is the alternative option of concluding a forward loan agreement, 36 month in advance. Of course, it depends on the interest rate development and on the current yield curve, whether this is advisable. Therefore, please don´t forget to take a look at the current conditions, approximately three years before the fixed-interest period will be expired. The team of FinanzierungsExpert would be glad to carry out those relevant inquiries for you.

The structure of the second investment round does not differ fundamentally from the first  financing round. However, all conditions should be renegotiated in order to adjust the new financing optimally to your current situation: Your personal living conditions not only have changed most likely, since the first loan has been concluded – due to a better-paid job or due to addition to the family. Even the general level of construction interest rates has increased or at best has dropped, since the first loan undertaking.

Do you have any more questions?

An individual consultation appointment can be arranged by contacting us:

Phone: 0721 – 56 42 42
E-Mail: info@FinanzierungsExpert.de or just use our information contact form provided on this website.

Contact us

Information about the author:

Alexandra Schneider is a certified bank business administrator and she writes about up-to-date topics, for FinanzierungsExpert.