CAP loans – conditions compared

A cap loan works like a normal loan, but the mortgage lender is much more flexible with this instrument. There is no fixed interest rate for the cap loan, rather the interest rate is always adjusted to the currently valid interest rate level. So that the worst case does not happen and the cost of the loan suddenly shoots up, a certain upper limit is set when the contract is concluded – the so-called cap. This makes the financing instrument relatively safe, because due to the limitation, the monthly burdens can not go without limits. Special repayments are also possible by the borrower, but they are always permitted at every new adjustment date. Anyone who unexpectedly has a large amount of money (e.g. an inheritance or a life insurance sum) can also make a full repayment of their cap loan.

If major restructuring measures are planned within the loan term, the cap loan can easily be converted into a long-term fixed interest rate. Fixed interest rates are possible here for up to 20 years. However, cap loans are only suitable for real estate financiers when interest rates fall. However, if interest rates rise, the loan can quickly become more expensive, because the not inconsiderable costs for the processing fee make the overall financing relatively expensive. With this type of financing, borrowers can also expect the requirements regarding creditworthiness and reliability to be applied twice as strictly.

A cap loan is therefore of interest to all those who have instantly found an object of their choice and need to access it, because otherwise it is no longer available and who is certain that falling interest rates can be expected in the future. The same applies to those who have found their dream property again at the moment, but will only be able to expect larger assets (e.g. from life insurance) in the near future. Cap loans achieve the greatest advantage when it comes to financing, in which the home loan contract is only allocated later. This would normally require very expensive interim financing. With a cap loan, this interim period can be easily bridged until the maturity of allocation, since unlimited special repayments are also possible here. In this way, the remaining debt can be repaid quickly and easily.

Whoever decides on a cap interest rate should pay particular attention to the interest rate adjustment, as these vary from bank to bank. For example, it can be adjusted monthly or semi-annually. In many cases, no special repayments are possible. It is also important what the interest rate is set at. If the bank complies with the respective reference interest rate, borrowers are arbitrarily delivered to their bank. Knowledge of the financial market is a prerequisite for this.

How Cap Loans Work

With a cap loan, real estate financiers combine the benefits of variable financing with the security of a fixed-rate loan. The difference to a normal loan is, however, that the interest rate is not set for the agreed borrowing rate, but only for a few months. The interest rate will then be adjusted again. The banks base this variable interest rate on the Lite Lender for 6-month money. This rate in turn depends on developments in the capital markets.

One advantage is the adjustment to the current interest rate level. The high level of security that classic mortgage loans offer due to their long term (between ten and twenty years) is an important point in mortgage lending. Another equally important point is flexibility, and this cannot be given with such a long term. Only cap loans have this advantage because they can constantly adjust to the current interest rate. Example:

In this way, borrowers can always react extremely flexibly to the general current interest rate level. Because they receive a flexible loan without a fixed interest rate in order to benefit from the favorable developments on the interest market. With a cap loan, not only can favorable interest rates be used, but the built-in upper interest rate limit also prevents the risk of an increase in interest rates. Cap loans can be closed for periods of 3, 5, 10 or 15 years. The amount of the upper limit of interest then also depends on this loan term. Because the longer the term, the higher the cap on the interest rate.

On the other hand, every borrower also has the option of converting their cap loan into a loan with a fixed borrowing rate. In this way, he can then enjoy absolute interest rate security. Due to the possibility of special repayment, the loan can be redeemed early, especially in high-interest phases. There is also no prepayment fee (there may be exceptions!). Another advantage applies to borrowers who want to finance their property in a low interest rate phase. If you don’t want to be bound by long interest rates here, you can use a cap loan as a building loan – an ideal financing component. Anyone who is too unsure about this type of financing can, as a builder or property buyer, divide the required mortgage lending amount between various loan modules and thus also across various risks. This can be done, for example, by building your financing on partial loans with a long or short term or by combining partial loans with a long or short term with a cap loan.

The advantages and disadvantages of cap loans

The advantages and disadvantages of cap loans

The advantage of cap loans is that, in addition to exhausting the maximum possible repayment options, it is also possible to pay them off completely. All in all, optimal conditions for real estate financing. Nevertheless, despite these advantages, the respective offers should also be carefully examined and compared with each other. There are differences in particular in the interest caps, the adjustment dates, the reference interest rate and the special repayment agreements. Here it says: Compare conditions. Another advantage of a cap loan is the relatively short notice period, unlike loans with fixed interest rates, which can only be terminated without damage at the end of the loan term. In this way, borrowers can benefit from the consequences of a financial crisis.

Real estate owners or borrowers who are expecting a falling interest rate development have enough time with a cap loan to observe the interest rate development on the market, but at the same time they are already able to realize their purchase or new construction project. Once the interest rate has finally come to an end, the loan can easily be converted into a long-term fixed interest rate. The same applies to all those who want to repay their loan as quickly as possible. A cap loan is particularly suitable for this, since the borrower can convert their respective interest savings from the favorable interest rates of the cap loan into a correspondingly higher repayment rate compared to the capital market interest rates. Due to the even higher repayment (between 1 and 2 percent is common), the term of the loan is shortened accordingly.

Cap loans can be terminated at any time with 3 months’ notice. If there is an increase in the interest rate, the borrower is even entitled to terminate his loan contract with immediate effect within 4 weeks after notification of the change. Despite these many advantages, there are only a few providers who refer to this option on their own initiative. Rather, other types of financing predominate simply because they flow more commissions. This makes it difficult for the end consumer to make a corresponding comparison between the different cap providers. A condition comparison between cap loans and fixed-interest loans is also extremely difficult. Again, this is much easier when comparing annuity loans with each other.

The biggest disadvantage with cap loans is the commission and processing fees, which can be between 1 and 2.3 percent of the loan amount. This additional burden must also be taken into account in the amount of the total funding. Borrowers must therefore weigh up to what extent the additional financial burden on insurance premiums outweighs the flexibility of a cap loan. If you compare, you may even find that – despite all the advantages – real estate financing via a normal “combination loan” (e.g. mortgage, home loan and savings contract) is cheaper than with a cap loan despite an agreed interest rate cap.

Another disadvantage is the fact that a borrower benefits from low or falling money market interest rates, but on the other hand he has to pay more when interest rates rise.

Who are cap loans suitable for?

Overall, cap loans are suitable for all those who would like to benefit from the currently low interest rates, without foregoing the important safety factor. However, if the general interest rate rises, the loan is taxed accordingly up to the agreed upper limit. Another possibility to make flexible and calm decisions is the cap loan in the situation in which you want to switch from your previous property to a larger or more appropriate property. Should the previous property be sold or rented here? To bridge this time of decision, a cap loan is ideal.

Or you expect falling interest rates, but have already found your dream property. Now you have to act quickly before someone else wins the bid. If you do not want to commit yourself in the long term in such a situation, you not only remain flexible with a cap loan, but you can also wait and see in which direction the market moves. Because an exit is possible at any time, a conversion into a long-term fixed interest rate can be determined at any time. In addition, the building owner is currently (as of 03.2011) receiving a current interest rate for short-term loans, which is significantly below that of a long-term loan. Due to the lower monthly debit, the borrower can make the corresponding repayments.


Final loan – advantages and disadvantages using the example

Anyone who decides on a final loan only pays the interest due until the end of its term, the actual amount, on the other hand, is only paid in full on the agreed due date. To ensure that the borrower is able to make the repayment at maturity, the banks have the availability of the total amount secured with capital investments. In addition, the credit institutions require an interest premium on the loan, since this itself represents a much higher risk than other types of loan. Accordingly, there is a suspension of repayments against life insurance, building society contracts or securities or fund savings plans.

The repayment itself is only suspended in order to save capital in a life insurance policy, a building society contract or in an investment fund. The level of the loan of course remains the same for the entire term of the contract. If, on the other hand, the final loan is terminated prematurely, for example because the borrower can no longer service the interest payments because he wants to repay his loan earlier than planned, then the loan amount is due in this case at the respective termination date. This results in both advantages and disadvantages for the final loan.

advantages and disadvantages

Advantages of a final loan Disadvantages of a final loan
The borrower has little financial burden because he only has to pay the interest payments during the term. Those who can not predict with almost certainty that the proposed repayment vehicle will bring a better return than the loan costs the borrower, should avoid it.
High flexibility, as it is possible for the borrower to make other investments until the end of the term. A loan that runs for 20 years must ultimately repay what the borrower hopes for after 20 years. It is always a risk.
There are always advantages if the interest on the respective form of savings is higher overall than the interest payable on the loan. Borrower needs product knowledge as only certain investment products are suitable for the repayment of maturing loans (i.e. no life insurance)
Depending on the type of contract, the interest can be fixed or variable. The interest rates of the banks are almost always higher with a final loan than with an annuity loan.
Interest on the final loan can be offset against the rental income. In many cases, the capital investment does not fall due at the same time as the final loan.

During the term of the final loan, the borrower can at any time pay all of his free capital into life insurance or another form of savings. The borrower can claim the resulting income before the end of the loan term. In this way, the borrower is also able to interim finance a larger amount. The final capital, on the other hand, is then settled again exclusively from income from life insurance.

Therefore, mortgages are often offered in mortgage lending. This period is bridged by a final loan so that, for example, a life insurance due immediately does not have to be terminated or a home loan savings contract that becomes due in a short time can be used accordingly. If the building society contract is then ready for allocation or the life insurance is due, it is used immediately to repay the final loan. However, certain experiences are required for the borrower. For example, considerable returns can be generated with securities. This income is often greater than the interest on the loan. However, the tenor is based on the words “let” and “are”, which ultimately means nothing other than that this form of loan is only suitable for risk-tolerant investors.

Because those who speculate also have to reckon with the fact that a not considerable part of what has to be spent on the repayment is missing. Because nobody can predict the exact amount paid out by a fund or life insurance company. Real estate financing alone poses a certain risk, and no one can take a look into the future today. What’s in 10 or even 20 years? Therefore, real estate finance providers should not take more risk than is absolutely necessary. Therefore, classic forms such as home loan or annuity loans should be chosen, perhaps in combination with current subsidies. For example, in the case of an annuity loan, the money is repaid in fixed monthly installments (consisting of an interest and repayment component) until the loan matures.

Annuity loan instead of final loan

Annuity loan instead of final loan

Thanks to low interest rates, annuity loans as the standard case of construction finance are currently clearly preferable to a final loan with savings through funds or life insurance. Yields, which have been falling for years, make it difficult to predict the expiry date of a life insurance policy, and it is also not possible to provide a reliable forecast of the performance of funds over periods of ten to 20 years.

Our tip: Use the current low interest rates and choose an annuity loan with full repayment during the fixed interest period. As our mortgage calculator shows, this way you can finance 200,000 USD over 20 years with interest of less than two percent per year and a monthly charge of less than 1,000 USD:

When are final loans used?

When are final loans used?

Real estate financiers often already have building society contracts or (capital) life insurance policies whose capital could be used for financing. But for that they would have to be due or ready for allocation. If the contracts, which had been in place for years, were canceled, severe losses would have to be accepted. In this case, part of the loan can be taken out without repayment. The capital payment, on the other hand, is used for repayment when it is due. This type of loan is also referred to as so-called interim financing. In this case, the credit contract runs until the contract becomes due.

For example, a loan amount of $ 35,000 is taken up, which is then to be repaid as a final loan but only in 6 years. Interim financing usually bridges part of the amount to be raised, which should actually be covered by equity. An interim financing loan is also not repaid, so that even after a longer term, the entire loan amount is due in the end.

As a rule, the borrower who does not want to act speculatively opens a savings account. The monthly installments paid in by the borrower are then saved first and then used to repay the loan at the end of the term. In order to repay the loan, the repayment of a final loan is completed in parallel.

Borrowers should not only rely on a fixed interest rate guarantee for the entire term, but also choose a secure savings account. Fund savings plans, on the other hand, can not only lead to a capital surplus, but also to a catastrophic scenario. On the other hand, the client can use a clever and profitable investment to shorten the total term of the final loan, in part considerably, compared to an annuity loan. This happens solely because the return on the investment is often much higher than the regular repayment of the annuity loan. On the other hand, every borrower should be aware that each annuity payment with annuity loans has a direct impact on the loan balance and thus on the amount of interest accrued for the next interest calculation.

As a result, the repayment portion of a loan with the same annuity increases over time. Conversely, the interest charge on a maturing loan always remains the same. If, on the other hand, the final loan is financed at an interest rate of, for example, 4.5 percent and the repayment saved in parallel generates an interest rate of 5 percent, then a final repayment can be profitable. The respective decision always depends on the personal situation of the borrower.

In addition to unit-linked life insurance, pension insurance and investment funds are also preferred investment models as savings plans that are used in parallel with the loan agreement over the entire term. Despite the use of existing investments, one fact must not be neglected:

The borrower has to pay interest on the full loan amount over the entire term, so that this system has to compensate for the additional financing costs compared to the annuity option. Example calculation:

Credit Amount:
10,000 USD
4% pa
payment protection
1st installment: 400 USD Interest portion: 400 USD Redemption share: 0 USD 10,000 USD
2nd installment: 400 USD Interest portion: 400 USD Redemption share: 0 USD 10,000 USD
Redemption share: 0 USD 10,000 USD
last installment: Interest portion: 400 USD Redemption share: 10,000 USD 0 USD

Fig. “Final loan”: Only interest is paid over the entire term, repayment is made in one sum at the end of the term. The amount of interest payments will therefore not be reduced during the entire term!

The fact that the interest component is initially higher is due to the fact that interest is only due for the remaining debt. As a result, however, the repayment portion decreases in the course of the repayment. Although the loan rate for a final loan consists of an interest and repayment component, only the interest is paid during the repayment phase, but the repayment component is saved. This, in turn, has the advantage that the term of a final loan is usually shorter than that of a loan with ongoing repayment.

Who are final loans suitable for?

Who are final loans suitable for?

A final loan is generally only sensible for rented properties, because here the borrower can use his interest on the external financing for tax purposes against the income from renting and leasing. However, if you live in your own home, there is no tax deductibility, so choosing an annuity loan is the better alternative. A final loan, i.e. financing with a consistently high interest charge, also pays off for builders if this is combined with a home loan savings contract, in order to secure the interest for follow-up financing early on. The same applies if investors combine financing with life insurance in order to deduct interest from tax.

A final loan also offers advantages in the event that securities have already been invested in the past, as this saves the builder from having to repay the monthly charge. Since the claims of the funds made available for the repayment of the loan must be assigned to the financing bank, it is particularly important for builders with life insurance that the surplus amounts obtained from life insurance remain tax-free even after the assignment to the bank. Therefore, a tax advisor should be consulted before the transfer.

Anyone who can expect an inheritance or the receipt of a fixed investment can also benefit from this type of loan. Since this form of loan is also finally due, the borrower primarily has a smaller monthly charge because the expenses for the repayments are eliminated. The big disadvantage of a final loan, however, is the high final rate – an often incalculable risk. On the other hand, the following applies again: depending on which repayment surrogate (home savings contract, life insurance, bank savings plan, etc.) is chosen by the borrower, there is even the possibility that certain savings benefits may even be subsidized by the state. In this way, the capital can be increased even faster. Therefore, borrowers should always include a special repayment option when making a final loan. However, these must be specially agreed with the bank.

Special repayments can also be terminated at any time with variable interest with a three-month notice period. If you can no longer meet your repayment, your bank will quickly cause problems, because the bank is entitled to make the claim due. The legal consequence of the due date is that the bank can utilize the mortgage rights ordered as security. A prerequisite for the realization of loan collateral is the maturity of the claims for which they were made. A bank can only apply foreclosure measures, such as auctioning, based on due claims.

The extraordinary right of termination is regulated in § 490 BGB. According to Section 490 (1) BGB, the loan can be terminated in the event of (impending) deterioration in assets. The borrower also has an extraordinary right of termination if the property lent is used for other purposes and if a prepayment penalty is paid (section 490 (2) BGB). As a rule, the bank is entitled to a special termination right if the customer’s economic situation has deteriorated significantly, if he is in default with the repayment of the loan (usually with two or three installments) or if the value of the collateral provided deteriorates significantly Has. However, these aspects must be checked carefully in each individual case.

Deceptive illusions

Every risk also carries its own danger. For example, if an investment does not develop as expected, the borrower may pay extra. This would be the case, for example, if the yield is correspondingly lower than the loan interest. If the value of an investment at the end of its loan term is even lower than that of the loan debt, there is a huge hole in the financing. If this hole also needs to be plugged, then the entire funding will no longer be sustainable for most. Because one very important point must never be overlooked: in the case of a final loan, the entire loan amount must be paid in full in one sum at the time of final maturity. Example:

In particular, due to the current reduction in the mandatory surpluses, many mortgage lenders in Germany are facing exactly this problem. The same problem would exist if the market interest rate for an annuity loan was 6.5 percent. Now, however, the yield of the repayment must be saved in parallel for each final loan. But if this return is only 5 percent, choosing a final loan would be bad business. On the other hand, if the market interest rate were 4 percent, the borrower could even make a profit. A final loan is therefore not dependent on the question “whether and if so, when?”, But only on the amount of the current market interest rate.

Investors or borrowers, on the other hand, should never use the final loan within a real estate loan for speculative purposes, because nobody can predict a certain increase in value. If the development turns out to be different than expected, the entire real estate business will soon collapse.

Tax aspects of final loans

Borrowers who use life insurance as a repayment vehicle must note the following: Income generated from this policy is only tax-free if the insurance was taken out before 2005 and for more than twelve years. In all other cases, all income – with the exception of a payment after reaching the age of 60 – is subject to tax. In addition to the agreed sum insured, the maturity payment for which taxes have to be paid also consists of the guaranteed minimum interest rate and possible but not guaranteed surpluses. Borrowers are therefore encouraged to agree a correspondingly high sum insured for a final loan through life insurance so that this amount is also sufficient – after tax deduction – for the final repayment of the loan.

Anyone who rents out their property can also deduct their interest on financing for tax purposes as an investor. A tax advantage can also arise when renovating rented properties due to the relatively high interest rates on a final loan.

In addition to the stability in value and the income opportunities from rental income, real estate is also interesting from a tax perspective. In the case of rented properties, certain advertising costs can be offset against the corresponding rental income. If the advertising costs exceed the rental income, there are “losses from renting and leasing”, which can be claimed for tax purposes. The advertising costs include, for example: the financing costs (interest on loans, ancillary costs and fundraising costs), depreciation (deduction for wear and tear = depreciation), maintenance costs, and other advertising costs. In addition to the interest on debt, the incidental financing costs include the loan commission, commitment interest and estimation fees; Fundraising costs include court and notary fees as well as an agreed discount.

Real estate loses value through its use. As a landlord, you can claim this loss in value by reducing the acquisition and production costs as well as incidental costs (e.g. brokerage commission, notary and court fees, real estate transfer tax and ancillary construction costs) over the years of use and offset against the rental income. Since land usually does not lose value, only the costs incurred by the building and the proportional incidental acquisition costs may be written off. The tax office also contributes to the costs of renovation work. A distinction must be made between immediately deductible maintenance costs and production costs. The latter may only depreciate landlords over the years of use.


Instant Loans – Quick Help From The Internet

It can happen again and again that invoices are on the table or urgent purchases are necessary without having the necessary liquidity in your own account. Nowadays, it is no longer necessary to run from bank to bank in such cases to get a loan. The internet has emerged as a reliable source of quick loans.

Find a loan on the World Wide Web

Find a loan on the World Wide Web

When searching for a loan on the Internet, the many websites and portals of the various credit institutions are particularly helpful. In recent years, banks have also discovered the possibilities of the Internet and in many cases are already offering the most important advice and applications on the Internet. To find a good loan, it is no longer necessary to always contact the bank advisor and obtain written offers. Instead, the network can be used to quickly and easily compare the different offers in this area. So you can get a good overview of the complex market of banks and loans. But what should you watch out for when searching online to find the best loans quickly and have them on your account soon? After all, in most cases you want to have the loan in your account quickly and not have to wait for weeks to process the applications.

Attention must be paid to this on the Internet

As with the search for a loan in normal life, special attention must be paid to things like interest rates and terms. This is the only way to get the loans without paying too expensive fees and interest. The real advantage of the Internet, however, lies in the quick processing. Once you have found a provider who offers the best conditions, you can usually send the application directly online. The application will be processed by the selected provider within a few minutes, but at most a few hours. So you should get feedback for your application very quickly and know whether you can count on the loan or find another provider.


How big the chance of a loan is despite a negative credit bureau entry

Almost every third German citizen has at least one negative Credit Bureau entry. But this population group also needs loans for urgent purchases. This article tries to clarify how big the chance of a loan is despite a negative Credit Bureau entry.

No branch bank grants credit despite a negative Credit Bureau entry.

The reason is simple: The German banking system relies on the information provided by the protection association for general credit protection (Credit Bureau). The information is crucial for the institutions to assess their creditworthiness. A visit to the house bank and other branch banks can therefore be described as hopeless, because the institutes all work according to the same rules. Only very few institutes are interested in the reason for the entry, with which special conditions such as the inclusion of a guarantor or other collateral can possibly be agreed.

The Internet offers opportunities for credit despite negative Credit Bureau entry.

The chances look better online, there are several options here. As long as the borrower can provide a permanent and permanent job that also has good income, lenders from neighboring countries offer themselves. The Swiss banks, for example, grant loans of up to $ 5,000 immediately and without any problems if the above conditions are met. Unfortunately, the loans that can be obtained with a negative Credit Bureau entry are not the cheapest. The foreign institutes also rate the risk of Credit Bureau-free loans higher and take more interest accordingly.

There is credit from private individuals despite negative Credit Bureau entry.

Especially in times of low interest rates, many private individuals are willing to lend their money to others. Lenders and loan seekers meet on specially designed internet portals and can negotiate interest rates there if they are interested. If a fixed income can be shown and the Credit Bureau entry may only have been made due to carelessness, the chances of a loan on fair terms are particularly high here. For more detailed information on personal loans despite a negative Credit Bureau entry, sites such as Lite Lender or Astro Finance are recommended.


Loan a loan: how it works

When can the loan be redeemed early?

Contracts for loans, like all other contracts, also have periods of notice, which must be observed in the event of early redemption. Installment loans can usually be terminated six months after payment with three months’ notice if they are signed before June 2010. Under EU law, younger installment loans can be terminated at any time without notice. Check your loan contract.

Real estate financing, on the other hand, is more difficult to cancel because such contracts run at least until the interest rate is fixed. That means at least over the period in which the interest rate to be paid is contractually fixed.

Redeem overdrafts

The easiest way to get a loan is with overdraft facility, which you use with your checking account whenever you “overdraw” it, so to speak. To pay off a overdraft facility, all you have to do is clear the current account. If you often exhaust your bank’s overdraft facility and find it difficult to make up for it in a timely manner, an installment loan as a debt rescheduling is a cheap alternative. If you are in the red for a longer period of time, you pay high interest costs on your overdraft facility – often over 10 percent. With an average of 4 to 5 percent a year, an installment loan is considerably cheaper. With the money made available from the installment loan, you can conveniently redeem your overdraft facility by simply transferring the money to your account and ultimately paying less interest.

Repay installment loans

Repay installment loans

The repayment of the installment loan, which was taken out, for example, for car financing, is also easily possible by rescheduling to a cheaper loan. Several current loans can also be replaced by a larger and cheaper installment loan. It is important that you always have savings in the end. Inquire with your bank about the amount of the remaining amount so that you can easily repay it with a better prepared loan by rescheduling. The same conditions apply to the credit line, which is usually cheaper than a credit line, but more expensive than an installment loan.

Loan building loan

Loan building loan

The loan repayment of a mortgage loan is heavily dependent on the terms of the loan. Is it a building loan or a building loan with or without fixed interest rates? It is usually not a problem to replace so-called variable loans. There, the interest is not fixed for a certain period of time.

However, if a loan has a fixed interest rate, you have to rely on the lender agreeing to prematurely repay the loan. In most cases, this option comes with paying a prepayment penalty. You must take these costs into account if you want to redeem the loan early. The same applies to debt restructuring if you want to replace the old loan with a new one. Always include the prepayment penalty and check whether the early redemption is really worthwhile.


Fixed rate loan – comparison, calculator, definition

Most of the fixed-rate loans in Germany are concluded in the area of ​​housing finance. In most European countries, only the variable interest rate on the loan is known in this area. Fixed-rate loans, on the other hand, have a long history in Germany and underpin the security concept of the Germans with regard to the financing of their own home. But fixed-rate loans also have their pitfalls. We compare these and the general characteristics and design features of a fixed-interest loan in our comparison:

Special repayment, full replacement and non-acceptance

In the meantime, it is common for bank customers to be granted special repayment rights up to a certain amount per calendar year in the loan agreements. However, this is not done automatically, but only at the customer’s request. The old contracts may not provide for special repayment rights.

If no special repayment right is provided, it is almost impossible to repay the loan in addition to the contractually agreed repayment rates. The bank is not obliged to accept all or part of the early repayment. The reason for this is the contractual agreement regarding the term and the repayment modalities.

There are only a few cases when a bank customer can partially repay or completely redeem his fixed-interest loan. This includes, for example, the sale of the financed property.

This was decided with a BGH judgment. The banks derive from the judgment that the borrower’s special benefit does not have to be accepted for all other life situations. The BGH has failed to adequately substantiate situations in which a bank, for example, has to accept full replacement.

But what has been sufficiently substantiated is the mathematical calculation of the financial damage that a bank incurs in the event of early redemption or special repayment. The bank incurs the damage whenever the repaid loan can be extended or invested at significantly worse terms than the terms originally agreed in the contract. The comparison is based on an interest curve, which the BGH has specified for all banks for such cases.

Quirky is also the fact that credit institutions can charge money if the loan is not drawn during the term. So if you only want to secure a loan in advance and only later decide on the possible drawdown, you should take into account that a high prepayment penalty must be paid in the event of non-acceptance.

Adjust interest rate

Adjust interest rate

Since the interest agreement is fixed, it cannot be changed during the agreed period. Even if market interest rates have fallen in the meantime and the bank could grant a new loan with an identical margin, no bank will accept interest rate adjustments during the agreed fixed-rate period.

This is because the contractual arrangement applies to both sides. The bank also has no right to adjust lending rates when interest rates rise. This situation is annoying for borrowers who took out their loans during a high-interest phase when interest rates have fallen in the meantime. If you expect interest rates to fall, you should either only enter into short fixed-rate commitments (for example, only one year) or make your loan a floating rate.

Fixed rate loan can secure flexible financing

Fixed rate loan can secure flexible financing

Interest rates for building finance have been falling for years. Anyone who took out a loan with variable interest rates a long time ago should replace it with a fixed-interest loan now or at the first sign of an interest rate turnaround.

Loans with variable interest rates can be canceled at any time

What many do not know: the loans with variable interest, also known as Euribor loans, can be terminated at any time with three months’ notice – without prepayment penalty.

When is the best time for a replacement?

The best time to replace a floating rate loan with a fixed rate loan is when the first signs of an interest rate turnaround appear on the horizon. Our infographic below illustrates this:


Constant mortgage loan – how it works

Constant loans are a special form of building society pre-financing. The main reason for taking out a constant loan is that the vast majority of real estate financiers need the help of the banks to buy a property, which provides the necessary loans to pay the purchase price put. In this financing, home savings contracts are also often included, because they offer the decisive advantage that through the use of the future home savings loan, at least part of the amount to be financed is obtained through the low-interest home savings loan. However, this is only possible if the home savings contract has been saved at least up to half and is ready for allocation. But this is not always possible, because in many cases the time of buying a suitable property does not come in line with the allocation of the home savings contract, so that the mortgage lender is now dependent on home savings pre-financing.

In this case, the bank or building society lends the borrower a so-called pre-financing loan, in the amount of the total amount of the building loan. The future home loan is also included in this home savings sum. The interest rate calculated by the banks for the pre-financing loan is the same as the building loan, in return the building loan contract is assigned by the borrower to the bank or building society as security. Within the home savings pre-financing, the loan amount, home savings sum and the monthly payments are coordinated so that the borrower pays a constant loan rate over the entire term.

If a contract is concluded for a constant loan, the amount required for the construction project is paid out in full. Along with this payment, an immediate deposit is made in a building society contract. This immediate deposit takes up 50 percent of the financing requirement and is also financed. At the latest in the eighth year, the home savings contract is ready for allocation, within this period the borrower pays a fixed monthly rate. After the allocation has been made, usually in the ninth year, the loan can then be partially repaid with the home savings credit, while the outstanding amount continues to run as a home loan. The monthly rate remains the same during this period.

This financing model results in comparatively very low interest rates over the entire term of the financing, and there is also no interest rate risk over the selected 10 or 15 years. At the same time, the borrower has the option of making special repayments from the eighth year after his home savings contract is ready for allocation. A combination of constant loans and variable loan parts is also possible. This option is suitable for all those who are flexible enough to make special repayments in the first few years. The home savings pre-financing thus offers a good opportunity to incorporate the home savings contract into the real estate financing before the actual allocation.

How Constant Loans Work

How Constant Loans Work

In the case of a constant loan, the monthly installment until the home savings contract is allocated is made up of the home savings amount and the loan interest. If the Bauspar contract is then allocated, the loan is repaid with the credit from the Bauspar contract. The remaining credit, however, continues to run as a home loan. As a result, nothing will change in the monthly installment you are used to, but it is now used for interest and the repayment of the home loan. With this type of loan, the current interest conditions – and thus also the monthly installment – can be fixed until the loan is fully repaid, so that the borrower does not have to worry about an interest rate increase.

Borrowers who opt for a normal annuity or full repayment loan can have the interest fixed for 15 or 20 years, for example. Likewise, the repayment is adjusted so that the loan is then fully, ie 100 percent, repaid at the end of its interest payment. If, on the other hand, a classic constant loan has been taken out, the borrower only pays the interest. A home savings contract must then be concluded in the same amount. As a rule, this is then saved to 40 percent of the home savings sum until it is then allocated. With this allocation, the borrower then receives his paid-up credit from the building society, including interest and home loan. The borrower then repays the loan amount originally taken out in one go. Only then will the home loan be paid off.

Both the interest and the monthly payments into the home savings contract are calculated in such a way that they remain the same over the entire term, until the loan is fully repaid and regardless of developments in the interest market. It is crucial here, however, that the lender, for example the building society, also promises the borrower a fixed rate over a fixed total term for a certain loan amount. Anyone who does not rely on a comparison of conditions quickly gets sidelined, because some banks require a so-called partial payment surcharge, which can amount to up to one percent on the agreed nominal interest rate.

Some credit institutions and building societies offer two different models in this context. In model 1, the borrower signs both the loan and the home loan contract in the same amount, but only pays the interest on the loan. In return, the home savings contract is saved up high, so that it can be allocated after a ten-year term, for example. Thus, the monthly installment consists of the home savings amount and loan interest. If the home savings contract is then allocated, the home savings account plus the interest is paid to partially repay the home savings loan. The remaining credit then continues as a home loan, although the monthly rate does not change here either. However, the monthly installment and interest rate on the home loan is now used. All in all, nothing changed in the monthly rate apart from the ratio of interest and repayment during the entire term.

In the case of model 2, on the other hand, the borrower also concludes two contracts, although part of the loan now flows into the home savings contract as immediate savings. From this point onwards, the borrower only pays the interest on his constant loan, but at the same time the home savings contract is also saved, albeit at a relatively low rate. If the home savings contract is then allocated again, the pre-financed loan is replaced. Depending on the contract, the building society contract can also be allocated differently, so that different and uncomplicated special repayment options can be used. Interested parties can secure such a loan from as little as $ 25,000.

A comparison is also very important for constant loans. Especially in times of low interest rates, this financing option can be a sensible safeguard against rising interest rates. However, with this variant it should also be noted that early termination by the borrower is very expensive in most cases, since no repayments are made in the first few years. With this loan variant, mortgages of up to approx. 72 percent of the property value are possible for predominantly owner-occupied, non-commercial real estate.

The pros and cons

The pros and cons

Home finance through a constant loan is always made using the combination of advance loan and home loan contract. The property acquired is therefore initially financed through the advance loan without any repayment. This is the pre-financing phase. During this time, the equity capital and a corresponding savings contribution will initially flow into a home savings contract in monthly installments. In the first few years, the installment itself consisted exclusively of financing the loan interest and the home savings contributions. If the home savings contract is ready for allocation, the home savings credit then replaces the advance loan. The amount that now remains runs as a home loan. This phase is called the home loan loan phase. This has the advantage that the risk of rising interest rates is excluded for the entire term.

One of the most important criteria for a constant loan is independence from what is happening on the capital market. Another advantage lies in the fact that constant loans are granted within the first six months after the loan has been committed without any commitment interest. If the applicant is authorized to do so, a residential Riester grant can also be included in the building society contract. Advantages and disadvantages must, however, be adapted to the individual economic situation and the security needs of the borrower. It is therefore worth comparing this form of mortgage lending with other options.

However, constant loans do not only offer the advantages listed above. If pre-financing is paid out, the borrower is only obliged to pay the interest on the loan, whereas the actual repayment is only made with the home loan. In addition to the interest, there is also the actual savings contribution up to the actual allocation of the home savings contract. Another disadvantage arises from an early, sometimes necessary exit from this financing model. In this case, the borrower incurs enormously high costs because the allegedly constant interest rate only makes the loan attractive at first glance. Because what a building society should never: guarantee the time of allocation for a building society contract! This is prohibited by law alone.

In most cases, the valuation figures at the decisive point in time of replacement are therefore very far exceeded in most cases. This in turn also extends the time within the savings phase. It is not uncommon for savings contracts with terms of between 14 and 15 years to be saved until they are finally ready for allocation. And up to this point, not a single USD had been repaid within the actual amount of funding! The disadvantages are accordingly that constant loans are often more expensive than pure annuity loans – at least according to the current interest rate (as of 03.2011). In addition, there are the closing fees of 1 to 1.6 percent that are incurred when a home savings contract is concluded. So that building society contracts are ready for allocation faster because they have been replenished accordingly, most building societies do not award a building society contract with a loan volume of 100,000 USD with 100,000 USD, but 5 building society contracts with 20,000 USD each. The building society is always the winner here.

Many and proven (!) Many borrowers also receive the wrong tariff from their building society. This in turn can be expensive for the borrower. If the allocation of the home savings contract is then delayed, then expensive interim financing is necessary again. And this often means the simple end. Borrowers also receive the interest rate security mentioned with the constant loan as well as with an annuity loan. Because even with this form of financing, extremely flexible special repayments are possible. After 10 years, borrowers even have the option to repay 100 percent of their loan – and all at no additional cost. Another disadvantage is that the constant loan model – depending on the course of the interest rate – is many times more expensive than a normal annuity loan.

Furthermore, special repayments, as is usual with building societies, are possible at any time, so that the burden can be reduced during the term. Conversely, the disadvantages outweigh this, because precisely because a constant loan consists of both a loan and a building loan contract, this also automatically increases administrative expenses. The risk that the building society loan contract will not be ready for allocation on day X and that an expensive interim financing would then be due makes the whole thing extremely uncertain. At the same time, borrowers who opt for a constant loan are almost always extremely closely tied to the provider, so that a certain amount of flexibility, namely in the event of a change of provider, can only be mastered at high costs.

So if there are already correspondingly low interest rates within real estate financing, a constant loan is in no way worthwhile. Arguments such as constant expenses throughout the entire term and special repayments do not change this, because this is almost always possible with annuity loans nowadays. Builders should therefore not weigh themselves in false security with a constant loan, because the lack of transparency in particular almost always makes it impossible to compare offers. A comparison with annuity loans almost never comes about. Most of them have to put up with the fact that they fall for an expensive fake pack. In addition, most banks only work with a single building society, so that they are bound by the conditions there.

The Alternatives to Combi Loans

In addition to the combination loans, the classic annuity loans also offer constant installments. However, this must be contractually agreed with the bank until the end of the term. The same applies to Volltilger loans, which can also be used to settle installments up to debt free. If the borrower chooses comparatively high repayment shares with this form of financing, the banks even reward them with attractive interest discounts. That is why the following applies in particular to home finance: compare, compare and compare again. Because the constant monthly installments once agreed must always be paid by the borrower until debt relief. Conversely, this also means that the economic performance of the borrower must always be guaranteed. This is the only way to avoid financial bottlenecks. Avoid these pitfalls when you get information from financing experts.

How to avoid unfair offers

The main disadvantage of a constant loan is the fact that there are too many offers on the market that are unfortunately not entirely fair. Only rarely are these stumbling blocks discovered by the borrower. Most credit institutions also refrain from stating the “true” effective interest rate. The offered interest rates for an advance loan and for the future home loan are almost always lower, but on the other hand the costs of this model cannot be seen immediately. Because only very few banks are willing to give the borrower the so-called reference interest rate. If a home savings contract is then concluded, commissions accrue between 1.00 and 1.60 percent of the home savings sum. Conversely, the home saver receives only an extremely low interest rate for his deposits on the home savings contract, but in return, significantly higher interest rates have to be paid for the advance loan that is included in the home savings contract.

On the other hand, if the interest on the advance loan were normal, the far higher costs of this model would be apparent to every borrower, which is why no one would choose this financing model anymore. For this reason, the banks make financing attractive by offering the repayment-free loan in the savings phase well below the market interest rate. This model is then brought to the man in a way that is effective in advertising.

What many borrowers do not consider: In order to receive the total effective interest rate, not only the effective interest from the previous loan but also those from the home loan must be linked. But precisely this interest rate cannot be mentioned by the banks, because in this case the entire offer would become unattractive. The effective interest rate is often higher than that of a comparable 15-year annuity loan – the financing is therefore too expensive and inflexible. Example:

The effective interest rate mentioned by the banks is also often a matter of definition, because in most cases the borrowers are deliberately misled. Here is an example: A borrower needs 100,000 USD for real estate financing. He chooses a ten-year fixed interest rate with a two percent repayment. The borrower relies on the offer of two banks: the first gives an effective interest rate of 5.33 percent according to the PAngV (Price Notice / Price Disclosure Regulation), the second comes to an effective interest rate of 5.43 percent. The fact that the first bank must now be cheaper than the second can quickly prove to be a mistake. Let’s take the first bank and call it “bad bank”. It gives the borrower a nominal interest rate of 5.20 percent, the effective interest rate according to PAngV is as high as 5.33 percent.

In addition, the bad bank has ancillary costs, which result from estimated costs, commitment interest and partial payment surcharges, in the amount of 1,200 USD. This results in an actual effective interest rate of 5.51 percent. Not so with the Lite Bank, bank number two. This requires a higher nominal interest rate, namely 5.30 percent, compared to the bad bank, so that there is an increased effective interest rate according to PAngV of 5.43 percent. However, the Lite Bank does not incur any additional costs. Therefore, the borrower at this bank benefits from 5.43 percent actual effective interest.

Another important thing to know. All building societies are required by the price regulation to name the effective interest for the advance loan and for the later building loan. But be careful: in most cases, both interest rates are well below the interest rates for loans with a comparable fixed-term period. Therefore, financing interests must know the actual costs for this model, and this can only be seen in the so-called “true effective interest rate” or “” combined rate “. However, only very few building societies give this rate. In many cases, real estate financiers also have to determine when using their home loan contracts that it is not worth using the home loan because normal mortgage loans are much cheaper.

In all of these cases, the pre-financing of a building loan contract usually proves to be an expensive loss. Example:

What most borrowers cannot know: Both banks, savings banks and building societies only offer the combination of advance loan and building society contract as “always recommended” because the building owner avoids “… the risk of interest rate increases in follow-up financing.” The customer on the other hand, it was never calculated how high the interest rates would have to be in order for the home loan prefinancing to pay off in comparison to a normal mortgage loan. In our example case above, the financing for the home saver would only have paid off if the interest on the loan with a 10-year fixed interest rate was approx. Would have skyrocketed 12 percent effectively. An almost unthinkable case.

From this it can be seen that credit institutions only offer their borrowers advantages, however, information about disadvantages and the honest presentation of all costs is rarely provided. If the building society savings contract is not yet ready for allocation, it should be checked in advance whether an additional payment makes any sense in order to achieve rapid allocation maturity. Example:

The savings interest within the home savings contract is offset by a loan interest (home savings contract) of 4 percent. This results in a loss of interest for the financier: 2.5% per year! It should therefore always be ensured that the credit institutions do not fix their interest rate for the pre-financing loan “until a specific date”, but rather “until the home loan contract is allocated” (so-called fixed interest rate until allocation).

Who is a constant loan suitable for?

Who is a constant loan suitable for?

Basically, everyone should stay away from a constant loan. Although the credit institutions or building societies always advertise this type of financing as ideal, it is suggested to the borrower that he is extremely security-conscious. And that he can rely on absolute interest rate security. But this highly risky security has to be bought at an expensive price. Anyone who relies on interest rate security can also get this with a normal annuity loan, because extremely flexible special repayments are also possible here. Ten years after full payment, 100 percent is possible here, and the whole thing without any costs!

On the other hand, the constant loan is the ideal solution for security-conscious borrowers who want a high level of calculation security and who want to completely eliminate the risk of rising interest rates during the loan term through the interest rate guarantee. A constant loan is also suitable for borrowers with financing needs for new construction, purchase, modernization or renovation as well as for debt restructuring or follow-up financing. Especially security-oriented people need a fixed calculation size when they take out a loan that is to run for several decades. Because a fixed interest rate that has only run for 10 years is simply too short for them. In many cases, however, there is a fear that interest rates may rise after ten years and that the monthly charge may become unbearable.


Credit for car repair

Everybody seems to have encountered a sudden technical failure of the car, such as breaking the tire, cracking the glass, exhausting the tailpipe, breaking the clutch, falling the belt, breaking the gearbox and the like. Such a fact is never gratifying, especially if it happened very unexpectedly and at the most inappropriate moment. This is uncomfortable not only because anything that is unplanned does disrupt your plans, but also because it involves spending unnecessary and unplanned funds. In addition, car repair is most often a matter of urgency, as most people have a private car as the only means of transport, such as work, school or any other important place.

Depending on the car, technical costs may be higher or lower

But these are costs that no one will ever count on, because whoever foresees and delays the money to repair a car if necessary – usually it is hoped that we will not be affected and The car will work just as great all the time, but experience shows that no one is protected from sudden technical problems due to various circumstances. Of course, there are also costs associated with car repairs that are scheduled and scheduled on a regular basis, such as changing the summer and winter tires, removing rust and painting, changing the toothed belts and other long-term things. In this case, let’s talk about unexpected and urgent situations for which unnecessary financial resources are not planned, but the situation has to be solved urgently.

If you urgently need a car repair, but your personal funds aren’t enough at that point, you can borrow money from friends or relatives or borrow a loan.

SMS or fast credit for your car repair

The so-called SMS or fast credit (especially with the interest-free credit function) and consumer credit are suitable for solving this situation. Fast loans can be obtained from non-bank lenders, from 1 up to 10000 EUR, for a repayment term of up to 30 days, moreover, within 10 to 15 minutes from the date of sending the loan application . Meanwhile, consumer loans can be obtained from both non-bank and bank lenders, from 50 to 13000 EUR, with a repayment period of 3 months to 5 years, but are issued within a few days. If you are in the situation described above, choose the loan that best suits your situation and quickly and simply solve the unpleasant situation!


Pay with a payday loan or credit card?

Would it be better to ask for a payday loan or, not wait, and go out and buy what you need with your credit card? That dilemma has a solution.

The differences between a payday loan and a credit card are important. Yes, it is true, both are financing lines. Both are offered by banks, banking companies and municipal savings banks. Both help you in times of crisis. And both allow you to grow.

The financial decision is to pay for the study or the holidays with your credit card or with the resources you get for a payday loan.

What will be more convenient?

Payday loan or credit card

Let’s review the characteristics of a payday loan:

    • The term can be extended up to 60 months
    • They can lend (depending on the financial entity) an amount that can vary greatly, but approximately $ 75,000 MX pesos, depending on the credit history and the institution.
    • The rates (TIAF) fluctuate between 8% and 31.00% according to the amount and term (data as of March 2019 of the SHCP).
    • You can get a bigger loan by giving a home as guarantee.

Credit cards have these conditions:

    • The term can be up to 36 months (very few offer more time).
    • The quota varies according to the income of the person.
    • Annual rates range from 23% to 151% (data as of March 2019 SHCP)
    • If you already have the card you don’t need approval and you could use up to 100% of the line of credit *.

As you can see, the term and rate are different in payday loans and credit cards.

And that couple of factors is what should guide you to make the decision.

Which to choose

The decision between paying with a payday loan or with a credit card will be based on the answers to these questions:

    • What do you need the extra money for?
    • How much do you need?
    • When can you afford it?

The normal thing is to use the cards in commerce, in retail, in restaurants and bars. People generally “like each other”, spend, consume with cards.

On the other hand, payday loans are widely used for study payments, home remodeling, starting a business or vacation. They are, as a rule, investments.

For example, if you want the money to buy a television, credit card is probably a good alternative. You will pay a higher interest rate, but you could pay it in a few months.

But if what you need are several televisions and computers to start a business, perhaps it is best to ask for a loan. You will pay less interest.

The amount is the second factor to evaluate.

  • If the amount is small, it may not be justified to start a credit approval process (whether online).

Finally, the term.

Finally, the term.

  • If you can pay in a few months, three, for example, and the amount is low, the card will be a good option.
  • In general, our recommendation is to use the shortest possible time to pay the credits.

Less term, less interest, better business.

Other options

Holidays are a good example of how to use both financing lines:

A personal credit will be cheaper.

But buying airline tickets with cards has great benefits, such as medical insurance, car rental discounts or accumulating points and miles.

How about, requesting the loan, with a twelve month term (because it is the time you estimate you will need), buy the tickets with the card and use the credit resources to pay the credit card for a fee?


The repayment table of a mortgage loan

Knowing the repayment table of a mortgage loan, makes you aware of what is being paid for the debt. The concepts that make up each of the quotas during the agreed term are understood. The balance of the debt is informed at all times to make an important decision.

The table is operated systematically and shows the gradual payments made every month. The detail of each of the concepts that compose it, in terms of capital, interests and others.

Components in the amortization table

To make a depreciation table you must have some elements.

  • The amount of the mortgage loan. It is granted by the financial institution when it approves a loan.
  • The number of payments. It is the term granted on the credit, either in months or years.
  • Interest Rate In accordance with the policies of the financial institution, a percentage is applied to the value of capital. It is the utility that the bank obtains for granting the mortgage loan.

Usually an important element like others is added, which could be insurance. This is added month by month within the value of the fee for the agreed term.

Using the PAYMENT function of the Excel application, you can calculate the monthly payment amount with these variables.

Creation of the amortization table

As mentioned above, the amortization table needs the components to perform the different calculations of the monthly payment of the debt. It shows both the value of interest and the value to capital. In this case, the PAGOINT function is used to calculate interest. This uses the same program of the PAYMENT function, but adds another element to indicate the period number. This calculates the amount of interest to be paid for that period.

When calculating the value of the first period, and verifying that the result obtained is correct, the components can be left as the basis of absolute references. In this way, copying the data for more periods will not vary and the complete table would be formulated.

However, if what you want to know is how much you pay monthly to the capital and know your balance, it is calculated with the PAGOPRIN function.

Therefore, it can be observed that several functions must be used to complete the total amount of a monthly payment. So the conclusion is that the three functions are complementary. The sum of PAGOINT and PAGOPRIN, results in the same value of the PAYMENT function.

In the end, you can talk about a balance that is resulting after each monthly payment, this would be an independent value. It is added by means of a formula by means of macros so as not to be copied every time it is required to obtain a balance manually.