For a long time now, with wages rising and the economic situation improving, quite a few people are thinking about owning a home. Of course, not every person can afford to buy a home from their savings, so they often turn to banks or other real estate lenders for a home loan. But how to choose the best deal, what to look for when borrowing?
The annual interest rate is not all
Often, borrowing people focus on the size of the annual interest rate (MPN). After all, the lower the percentages, the better? The answer is not simple: neither is it.
The annual interest rate indicates only the interest you will pay the bank. However, in addition to interest, you often have to pay other fees, such as a loan or account administration fee. In addition, there are often other one-off fees: contract fees, notary fees. These not-so-noticeable costs can significantly increase the final amount paid. Therefore, it is important to find other fields in the terms of the credit agreement as well: the total amount payable by the borrower (BVKGMS) and the total annual percentage rate of charge (BVKKMN).
BVKGMS specifies the amount you will repay throughout the term of the loan, including interest and other additional loan fees. The BVKKMN expresses this percentage as a percentage. Some credit-related costs are not included in this amount, but it will tell you how much you will need to repay, much more accurately than just the MPN.
Thus, a lower MPN is beneficial, but other loan-related costs must always be considered. Most lenders have handy home loan calculators on their pages – take advantage of them. Often, in order to attract more customers, lenders lower interest rates but increase other costs. Don’t be fooled and always read all the loan terms and conditions carefully.
What is that interest?
Interest is not as easy as it may seem. Many understand that this is the fee you pay for the amount of money borrowed from the lender. However, the interest comes in different forms and consists of several parts.
When borrowing for a home, you can choose the type of interest you want to pay: fixed or variable. The latter are composed of the so-called EURIBOR plus margin. EURIBOR is a variable amount that depends on the key interest rate set by the European Central Bank. EURIBOR is currently negative and would be borrowed at 0%.
The margin, meanwhile, is determined by the bank, taking into account the characteristics of the borrower, such as income, financial liabilities and holdings, assets under management, marital status, etc. In most cases, the margins are fixed throughout the loan period. Hence, variable interest would mainly depend on the amount of EURIBOR, which can be converted every 3, 6 or 12 months. Your contributions may change over time as well.
When choosing a fixed interest rate, it is fixed several years in advance. You would be paying steady contributions throughout this period, so you should not be afraid of a sudden increase in your premiums after the EURIBOR change. However, as experts point out, fixed interest rates tend to be higher than floating rates, so that they are usually paid more throughout the life of the loan.
As with any transaction, you must always read all the terms carefully before choosing a loan. Take a look at the offers of several lenders and ask them to submit them in a standard form so that you can easily compare and choose the one that suits you best. Once you receive a formal (binding) offer, don’t hesitate to accept it – you can consider and respond to the creditor within 30 days. You can also cancel your loan within 14 days, even after you have borrowed it. You will then need to repay the entire amount issued plus interest accrued during that period.
Please note the terms of the contract, administrative and other additional fees, which, as mentioned above, can significantly increase your refund. Often, the contract fee varies between 1.5-2% of the loan amount, so a $ 100,000 loan can cost you an additional $ 1,500 to $ 2,000. You may want to adjust the terms of the contract at the time you have the loan (for example, to replace the fixed interest rate with floating rates), so look at the cost of changing the terms.
Consider your financial situation and choose between variable or fixed interest. If you can afford to take the risk or think that the loan will not be a major hardship, it is better to choose variable rate and thus have the opportunity to save. If you see that you are borrowing close to your financial capabilities and are afraid that an increased down payment may be a nuisance – borrow at a fixed rate.
The key to borrowing is to properly assess your financial capabilities and not to “jump above the navel”. Defaulting financial obligations can cause a lot of annoyance that will not only affect you financially. Therefore, if you foresee that your financial situation may soon deteriorate or that your future commitment will be too heavy, wait and take a better loan.