How banks are using a low construction interest rate to attract customers?
Skillfully, banks go after customers with a low construction rate. Buying real estate or building has rarely been as cheap as it is now. A low construction interest rate on construction loans and mortgages, as well as government incentive programs, make buying a home more attractive than ever before. But the bottom line is that the construction rate is usually not so favorable after all. Have you ever looked closely at such a prospectus? There is always an asterisk next to the construction interest rate information. Adding the note, "Sufficient credit rating provided.". Phrased this way, or something like it. In plain English, only those with a top-notch credit rating, in the bank's opinion, will get such a construction rate.
Why you won't get a top construction rate
Generally, only those customers who get a top construction rate usually don't need it. So builders with high equity without unscheduled repayment and other extras. If you get a personal loan offer from the bank, the personal construction interest rate is far from higher. Often lack enough equity to get a top construction rate. In addition, there are significant costs, which are called incidental costs of purchase. Far too often, these costs are not adequately considered in a financing arrangement. Incidental purchase costs are land transfer tax, notary, land registry and broker, if you have hired a broker. Thus come fast between 5 and 12% of the purchase price at purchase additional costs still in addition.
If one adds now still another own capital funds of 50 per cent, then you should be able to raise at least 55 to 67 per cent of the purchase price at own capital funds. Then you have a real chance to get a top construction interest rate. For normal consumers, the chance to get such a top construction interest rate is almost zero. For us a clear case of Lock interest offer. What is the use of suggesting a favorable construction interest rate to the consumer, if he does not get it?
The credit rating and the construction interest rate
The requirements for creditworthiness are becoming tougher and tougher. The lower the credit rating, the higher the construction interest rate. The banks justify this with an increased risk. Consequently, proper risk surcharges are added to the construction interest rate. But extras and special requests also drive up the construction interest rate.
Building loan with expensive construction interest due to interest surcharge
Extra wishes with the building loan cost extra and are included as interest surcharge in the building interest rate. Example: interest surcharge in the construction rate
- Interest rate premium for a construction loan up to 150.000 € from ca. 0.1 percent
- Interest premium for a building loan up to 100.000 € from ca. 0.15 percent
- Annual unscheduled repayment of 5 to 10% costs from 0.05 to 0.25 percent.
- Interest surcharge for properties that are not located in metropolitan areas 0.05 to 0.15.
- Self-employed and freelancers receive an interest rate premium of 0.1 to 0.3 percent.
- Interest surcharge for building loans with a fixed interest rate longer 10 years cost between 0.6 and 2% etc.
The list of interest surcharges can be continued at will. The amount of interest surcharges can vary greatly from bank to bank. But it does not help. The more offers you catch up the more expensive your building interest becomes. But a construction loan comparison is worthwhile in any case. Differs the building interest only around 0,5%, with a running time of approx. 15 years and a construction loan of 180.000 euros, you can quickly get 10 to 15.000 euros in building interest saving.
The best interest rate for your construction loan
Before you get a construction loan offer, you should determine a number of key data on their construction loan:
- How much money do you need?
- How high may be my credit installment?
- In what period you want to claim the construction loan?
- Can you make unscheduled repayments?
Only with exact conception and concrete basic data building loan offers and building interest are comparable. Everything else is wasted effort.
Building loan tip: favorable building interest
Take the help of the consumer centers in use. Such advice is non-binding independent but unfortunately not free of charge. The consulting fee amounts to approx. 100 to 200 euros. In comparison, the benefit you get from such a consultation is enormous. For a good consultation and a tailor-made building loan with a favorable building interest these 200 € are well invested. This fee is quickly recovered with a favorable construction interest rate.