Even a rule of thumb from which one can derive one’s own four walls has been calculated by the scientists: How much equity a developer should ideally contribute to the financing of a house depends on the individual circumstances. A real estate loan is a good solution in this case, as it allows to repay the house in installments. In this way, you do not overwhelm your own budget and can fulfill your dream home. How much a house may cost depends essentially on the interest rate and the amount of the repayment, but also on the equity. An editorial over at cheekysquirrel.net
Justice: Three gold rules
Equity capital is the anchor point of any real estate financing. The more credit users and builders of an owner-occupied property can use, the lower the credit and mont. The lower interest rate risk also rewards banks with lower rates. High mortgages, on the other hand, are subject to significant surcharges. At the same time, the refinancing risk will increase in 10 or 15 years if there is a demand for significantly higher interest rates.
The credit institutions base their loans on the purchase price and the market value of a property. The home or housing security takes place as a guarantee. However, ancillary acquisition costs are not included and usually have to be covered in case of full financing by the acquirer’s capital. With a real estate purchase for 200,000 USD, this can amount to around 30,000 USD depending on the country.
Note: A listing with further additional costs for the owner can be found here. Other provisions for unpredictable costs are also useful when purchasing or building. For self-occupied properties it is advisable to have a liquidity of several thousand USD; As a rule of thumb, around three net monthly salaries are incurred – so that no unpredictable costs (back payments, repairs) arise.
The interest on a real estate loan depends on the credit risk for the house bank.
The contribution of less own funds increases the risk and thus the interest for the client. Interest surcharges are particularly high if more than 80 or 90 are lent from the purchase price of a property. Interest surcharge: The interest on loans exceeds 50 per cent of the purchase price for many banks.
For example, the 60 and 70 percentage point interest rate increases for mortgages can be slightly increased by 0.05 and 0.10 percentage points, for 80 to 100 percentage points generally by 0.20 to 0.80 percentage points, for 100 percentage points in some cases even by 1.00 percentage points and more. The interest rate on the loan share, which exceeds 80 or 90 percentage points, is about 5 to 10 percent converted.
However, because banks only quote the interest on the total loan, the premium is barely perceptible to the clientele. A family member buys a property for 200,000 USD, receives a loan with 15 years fixed rate and 2% repayment.
According to calculations of the foundation, the equivalent of Teur 10.64% was interest. In total, the whole family pays almost 6,000 USD more interest over 15 years. For the acquisition of owner-occupied real estate, it is recommended to invest at least 20 percent own funds. As a result, the interest rate is lower than 80% of the purchase price compared to mortgages on the property.
With low construction capital interest, the question quickly arises as to whether debt financing is possible even with little or no capital. To what extent is debt financing without own funds even possible? In any case, the risks should be calculated with low equity capital expenditure in such a way that the financing does not become an economic burden in the long term.
Especially after the first repayment period, the possibly higher interest rates for the follow-up financing must still be bearable. Those who do not have enough capital to buy real estate should repay more. Thus, they ensure that a customer with little own funds initially paid at least two percentage points. For example, for a loan, the monthly fees are a few hundred USD.
Therefore, it is advisable to invest a lot of own funds and amortize from the beginning to a high level. In the case of low interest rates, the earliest possible fixing of interest of at least ten years, preferably fifteen or twenty years, is preferable. A higher repayment rate, preferably of at least three percentage points, or even more if possible, also reduces the credit risk at the end of the term.