Best ways to finance your home

Buying a house: Choosing the right financing

The models and conditions offered to finance a house vary considerably. Therefore, the type of financing for a property should be carefully thought through. You have the choice between different amortisation amounts, different interest rates and can decide to fix an interest rate for a certain period of time (fixed borrowing rate). The choice of financing for the property is decisive for the long-term sustainability of the loan and, if applicable, the starting position of a follow-up financing later on.

If you opt for a house financing with a fixed down payment without a fixed interest rate, rising interest rates could easily increase the monthly instalment by hundreds of euros in a few years. If you want to benefit from the current low interest rate in the long term, then a long-term interest-linked property financing is the best solution. It secures a fixed interest rate over the entire financing term and is not affected by rising construction interest rates. If the interest rate for financing a property is fixed for such a long term, a premium of 0.5 to 0.8 per cent is often charged, but this can pay off in view of possible rising interest rates.

If you start your flat or house financing with a high monthly repayment amount from the beginning or make possible additional repayments (unscheduled repayments), then you can reduce your interest burden in the long term. The interest is calculated on the remaining debt according to the loan still available. Therefore, the interest costs incurred decrease from month to month, while the effective repayment increases by the interest saved.

If you repay part of the loan amount in the meantime, the amortisation will increase in the long run and your loan will be paid off faster. For this reason, when talking to your bank about financing the property, you should negotiate that you may make additional repayments beyond the contractually regulated amortisation if you wish.

Service charges when buying a house

Another important point to consider when buying a house or flat and the associated financing is the incidental costs of purchase. Land transfer tax, notary fees and estate agent fees can account for up to 15% of the purchase price - depending on where you live. These ancillary costs increase the loan amount required to finance the property, which increases the monthly repayment to be made. To avoid this, it makes sense to finance the bureaucratic ancillary costs from your own funds if possible. In this way, they avoid unnecessary additional burdens in the overall financing.

The amount of the planned purchase as well as the choice of the appropriate payment model should depend on an honest analysis of the economic possibilities. Only if one's own financial leeway is honestly and critically examined can a house financing be stable. A loan with a rate that is set too high or with a time frame that is not tailored to you restricts your financial mobility. However, this should be maintained at all costs in order to be able to carry out necessary repairs and expenses on the house during the repayment period.

We at Engel & Völkers will be happy to advise you on all aspects of your dream property and assist you with advice and experience in property financing. We offer properties throughout Germany that, when financed correctly, will put an end to monthly rent payments and get you into your own four walls.