Property financing can seem complicated, but it consists of just a few building blocks. Those who understand it make better decisions and often save a lot of money. Here are the basics.
The building blocks of financing
| Term | Meaning |
|---|---|
| Equity | Your own money contributed (savings) |
| Loan | the amount financed by the bank |
| Nominal interest | the interest rate on the loan |
| Repayment | the portion with which you pay off the loan |
| Instalment | monthly payment of interest + repayment |
| Fixed-interest period | period with a fixed rate (e.g. 10-15 years) |
How much equity makes sense?
A proven rule of thumb: the incidental purchase costs (around 11-12% in Saarland) should come from equity, ideally plus 10-20% of the purchase price. More equity means less risk for the bank - and therefore usually better interest rates.
Understanding interest and repayment
The monthly instalment is made up of interest and repayment. At the start the interest share is high; over time it falls, because the remaining debt shrinks. A higher initial repayment rate (e.g. 2-3% instead of 1%) shortens the term considerably and saves interest costs. Special repayments offer additional flexibility.
Fixed-interest period: short or long?
The fixed-interest period sets how long your rate is guaranteed. In times of rising or uncertain interest rates, a long fixed period (15 years or more) provides planning security. After it ends, the remaining balance is re-priced with a follow-up financing arrangement.
Frequently asked questions
Can I finance a property without equity?
So-called full financing is possible, but more expensive and only sensible with very good creditworthiness. At the very least, the incidental purchase costs should come from equity.
What is a good repayment rate?
At present, at least 2%, and better 3%, of initial repayment is considered sound - that way the property is paid off within a manageable time.
What happens when the fixed-interest period ends?
The remaining debt is financed further through a follow-up arrangement on the terms then applicable. It pays to compare early.
On request, we arrange suitable financing and work through your options with you, free of obligation.