Month: January 2020

Calculate prepayment penalty and redeem the loan early

The prepayment penalty is an additional payment to the lender, for example the bank, which the customer must pay if he repays the loan early in the first 10 years of fixed interest rates.

The customer may reschedule an installment loan at any time, construction financing only if there is a legitimate interest. In both cases, the bank can request compensation. He may only change providers after 10 years or at the end of the fixed interest period without paying a prepayment penalty.

 

The prepayment calculator for mortgage lending

mortgage loan

Banks are obliged to make the calculation of the prepayment penalty transparent so that the borrower can understand their amount. The prepayment calculator of the independent consumer portal Astro Lending supports interested parties and calculates the approximate amount of their prepayment penalty for a building loan.

The calculation basis is complicated, so compensation that devotes from the result of the prepayment calculator can be justified. If there is a large deviation, however, an inspection can be useful. For example, it could be possible that the bank did not take the maximum special repayment into account when calculating the prepayment penalty or calculated a higher administrative cost.

 

The prepayment penalty for the installment loan is calculated in this way

installment loan is calculated in this way

The calculation for installment loans that were concluded after June 11, 2010 is simple:

  • The prepayment penalty for a prematurely terminated consumer loan may not exceed 1 percent of the remaining debt.
  • If the remaining term is less than a year, the sum may only amount to a maximum of 0.5 percent of the remaining debt.

This limitation does not apply to building finance. The amount of the prepayment penalty is not capped even for installment loans that were closed earlier.

 

This is how the prepayment penalty for a building loan is calculated

building loan is calculated

Banks use one of two methods to calculate the prepayment penalty for a real estate loan:

  • Active-active method
  • Active-passive method

With the active-active method, the interest income lost due to the early repayment of the loan is compared with the interest income accruing from a new loan agreement. This calculation method is often cheaper for borrowers and is used by relatively few banks.

However, the calculation based on the active-passive method is used much more frequently. It  provides that the credit institution calculates the prepayment penalty from the difference between two amounts:

  • the payment flow agreed in the contract (interest, repayment, remaining debt at the end of the fixed interest period)
  • and the interest income that would accrue if reinvested in mortgage loan with the same term.

 

Why is a prepayment penalty charged?

loan penalty

What is an advantage for the customer usually represents a financial disadvantage for the bank concerned as a lender. This also applies to the early termination of a loan: if the customer repays the loan early, the bank can no longer collect the interest calculated in advance. The bank incurs a loss of income. In order to compensate for this, she can calculate a prepayment penalty.

 

When no prepayment penalty is charged

money loans

A prepayment penalty is only calculated if the unscheduled repayment of the loan is made during the fixed interest period. In the case of variable-interest loans, where there is no fixed interest rate, there is no reason to calculate compensation. In the case of mortgage lending, follow-up financing can be concluded with another bank after the end of the fixed interest period without any prepayment penalty. If the borrowing rate is set to last longer than ten years, early redemption after the tenth year will also not result in compensation if the notice period of 6 months is observed.

 

Is it worth repaying the loan early?

loan payment

Before borrowers redeem their existing loan prematurely, they should always take the prepayment penalty into account. To do this, they have to calculate whether the interest benefit that would result from the newly taken out (cheaper) loan as a total is really greater than the prepayment penalty to be paid. The advantage calculator for follow-up financing helps to determine how much dollars savings the interest rate difference between old and new loan actually means. If the interest savings are less than the prepayment penalty, it makes no economic sense for the borrower to terminate the existing loan early, even if the borrowing rate of the new loan is lower than before.

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Follow-up financing: comparison of your interest and costs – Loan Refinancing

If a building loan has not yet been paid in full at the end of the fixed interest period, follow-up financing is required. That means: the homeowner has to renegotiate with the lending bank or find another lender. If you don’t want to give a penny away, you will find suitable financing early on before the interest rate fixation expires. At least three months, better half a year before the end of the fixed interest period, the borrower should receive an offer for the prolongation from his bank and at the same time obtain counteroffers from other lenders for a possible debt rescheduling.

 

Interest rate comparison is worthwhile

Interest rate comparison is worthwhile

Since the offers on the market may well differ, a comprehensive comparison is required. The building rate calculator determines which borrowing rate you receive for your building finance from a cheap provider. Alternatively, you can request a specific financing proposal under loan application. Both offers are of course non-binding and free of charge.

 

Is it worth changing the bank for follow-up financing?

financial loans

With the calculator for follow-up financing, borrowers can calculate whether a change of bank is worthwhile for them. If the lender changes, there are costs for the transfer of the land register and the notary in the amount of a few hundred dollars, but these can be recouped through low-interest follow-up financing. Real estate financing, which is 0.5 percentage points cheaper, can save interest by a few thousand dollars.

You can calculate which additional costs arise from follow-up financing in the land register and notary fees calculator.

 

Secure early interest rates for follow-up financing

interest rates for follow-up financing

Borrowers should have follow-up financing compared in good time to find a suitable loan with favorable terms. If the fixed interest rate for an existing loan expires, the house bank sends a prolongation offer at least three months before the fixed interest rate expires, which usually has to be accepted within a few weeks. Then the time is often too short to look for cheaper offers and to compare them in peace.

It makes sense to find out at least half a year before the interest rate commitment expires. When interest rates are low, it often makes sense to worry earlier. Because many banks are already offering low interest rates now, even if follow-up financing is only called up in six months or a year. Even with an even longer lead time, you can take advantage of cheap offers via so-called forward loans.

 

Attractive terms for follow-up financing

money loans

Banks often have good offers when it comes to follow-up financing. Because homeowners have proven their creditworthiness by regular repayment of the installments since the completion of their first financing. They may also have higher incomes and greater financial leeway than years before the first loan was taken out.

 

A high repayment is recommended

loan repayment is recommended

A high repayment is particularly important for follow-up financing. Now borrowers should set the course for their freedom from debt. You should keep your monthly rate as low as possible, or – better yet – set it high so that you can repay your remaining debt faster. Since there is often a greater financial leeway compared to the time of initial financing, a higher rate of follow-up financing is also feasible for many.

 

Debt rescheduling before the end of the fixed rate period

Debt rescheduling before the end of the fixed rate period

A house or apartment loan can also be redeemed before the end of the interest rate fixation with an early repayment if the borrower wants to switch to another bank with better conditions. After 10 years, this is possible at any time by observing the notice period. If you want to replace that before, you have to pay a prepayment penalty. Since the level of interest five or ten years ago was still significantly above the current best rates, many consumers can save with a new loan agreement.

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Home loan for your dream property: individual comparison

For around 80 percent of Germans, owning their own property is the top priority on the wish list. For most, this wish can only be realized with a home loan. The Lenders Bank ‘s low interest rate policy gave many tenants the chance to fulfill their dream of owning their own four walls. See for yourself how low interest rates are: Enter the data on your home purchase in the home loan comparison at Vibeloan Bank. The cheapest offer will be determined for you from hundreds of banks and savings banks.

 

This is how a home loan works

home loan works

A building loan is colloquially referred to as “house loan”. A mortgage is a very long-term loan secured by the property itself, the total term of which is often between 20 and 40 years. The duration of the fixed interest rate must be differentiated from the term: it is usually five or ten years for a home loan. Follow-up financing follows.

 

Real estate as security for a home loan

As a security, no salary assignment, as with an installment loan, and no assignment of the motor vehicle letter, as with a motor vehicle loan, are required for a home loan. Either a mortgage or a mortgage on the house or apartment is entered in favor of the financing bank. However, mortgages are in the background, in 90 percent of the cases mortgage is secured by a mortgage.

While the amount of a mortgage theoretically has to be adjusted with every repayment, the mortgage remains in full over the entire term of the building loan. The land charge can remain after final repayment and can be ordered later as security for a new loan. The bank’s claim to the house expires with the payment of the last repayment.

 

Equity on home loans

home loans

As a security, the bank does not accept the purchase price of the property, but a mortgage lending value, which it determines based on objective criteria. It rarely corresponds to 100 percent of the purchase price.

As a rule, customers should finance a maximum of 80 percent of the purchase price when buying a house. Solid construction financing provides for 20 percent of the purchase price plus the incidental acquisition costs from own funds. The following are considered equity:

  • Cash assets
  • mortgeable securities
  • Building society savings
  • ceded surrender values ​​from life insurance
  • Loan from the employer or relatives
  • Own contribution

 

Interest rates

Interest rates

A high proportion of equity is important for customers in order to receive cheaper interest. In addition to equity, individual interest rates depend on many other factors, such as the customer’s creditworthiness or the duration of the borrowing period.

The general level of interest on mortgage lending is primarily based not on the key interest rate of the Lenders Bank, but on the Pfandbrief index. The key interest rate has only a limited impact on the Pfandbrief index.

 

Other costs

loan costs

In addition to the annual interest rate, a house loan can also incur additional costs – such as commitment interest, if the loan amount is only called up after a few months. A prepayment penalty is due if the loan is terminated before the fixed interest period expires. Real estate itself also incurs costs – for example through taxes or insurance.The guide offers an overview of additional costs for buying a house and maintaining a property.

Basically, it is advisable to compare the offers available on the market in order to find optimal home financing. The home loan calculator at Vibeloan Bank will help you with this.

 

Further building blocks for real estate financing

home loans

Real estate financing can consist of several different loans. In addition to the house loan described above, this can also be a home loan, a money loan or an employer loan.

  • Home savings loans have a comparatively short term. This means a quick and therefore cheaper repayment, which, however, is offset by a comparatively high monthly charge.
  • Low-interest money loans are used both for pure construction finance and for special projects – for example to improve energy efficiency or for barrier-free living.
  • Employer loans are added to equity by banks, but must be subject to strict tax regulations. If these are disregarded, there is a risk of tax liability on income-like special payments.

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Short-term loans – Borrowing money for a short time – Credit

Short-term loans are perfect for those who only need to borrow a small amount of money, and for a short time. There are many benefits to this type of loan, and in addition, these loans can be free. That is, the loan will come without interest. Another thing that stands out about the short-term loans is that it is quick to get the money paid into your account. Short-term loans are often also referred to as quick loans or sms loans. Then it is convenient with short loans as you can find many good alternatives that suit you who do not want a credit record . Even people with payment complaints have good chances of finding a lender who will accept the application.

 

Short-term loan without credit record

Short-term loan without credit record

Applying for a short-term loan without credit record can be important as you do not want too many credit record checks made. This is important as it will affect your credit rating in the future. Trying to get a traditionally large loan without credit record can be next to impossible. In fact, almost all major banks and other major financial institutions still use credit record . Unlike those lenders, however, you can find many smaller short-term loans where the lender will not do any credit record . Of course, they want to be sure that you will be able to repay your loan, but instead of credit record they use other companies to check your credit rating.

 

Short-term loan with payment note

Short-term loan with payment note

Obviously, having payment notes does not mean that you are necessarily in poor control of your finances. It takes three years for a payment note to be prescribed. Thus, it may be that you previously had financial problems that you have now overcome. Furthermore, it is, however, that it can generally be very difficult to find someone who wants to grant you a loan, even if the payment note is on a smaller amount and it is also old. Here too, short-term loans come into the picture as a good solution. You can easily find many different lenders in the category of short-term loans who understand your situation and who are willing to process your application despite payment remarks.

 

Short loan without interest

Short loan without interest

Short-term loans do not necessarily mean that interest rates are unreasonably high. In fact, the first 14 days by law means that you have a right of withdrawal, so you can withdraw from the loan. Furthermore, this in turn means that the first 14 days are in principle both interest-free and fee-free loans. In summary, it does not have to be expensive to use short-term loans. The most important thing is that you know that you will be able to repay the loan within the stipulated time. Disadvantage of these smaller quick loans and sms loans can be high interest rates and fees if you fail to pay.

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