In real estate financing, a distinction is made between 100 percent and full financing. While only the pure purchase price and / or the construction costs are covered with the former financing, with the full financing also the additional costs are included. That is, notary fees, processing fees or land transfer taxes are also funded.
Advantage of a full financing: With a full financing without equity, the own liquidity is completely preserved and so unforeseen expenses can be incurred. Until a few years ago, the builder or home buyer had to raise at least 20 percent equity. In addition, he had to finance the additional costs. This requirement remains to be recommended, but there are now many financial institutions offering full financing.
If you have a mortgage without equity, you have to expect some high interest premiums. Our mortgage calculator shows you the interest rates you need to expect in the case of full financing. Interest-rate premiums of 50 to 80 percent are not uncommon, as our calculations show later on this page.
Which providers currently have particularly favorable interest rates for mortgage lending without equity, shows our comparison:
- How does mortgage lending work without equity?
- How expensive is mortgage lending without equity?
- Cost of real estate loans in Germany
- Target group of banks and positive aspects
- What negative points are there to consider and what problems can arise?
- Tips for builders
How does mortgage lending work without equity?
Depending on the bank, the requirements that a borrower has to meet for full financing vary. In any case, there must be a secure income, which, moreover, should be reasonably high. Who asks as a freelancer or self-employed after a full financing, must meet usually even higher requirements than z. B. an employee. The income is set as the limit for the possible amount of funding. Usually, a loan can be awarded up to nine times the net income of a year.
There are two repayment options for mortgage lending without equity: On the one hand, financing is provided through an annuity loan. Here, the monthly payment to be paid always remains the same amount – at least as long as the borrowing rate does not change. But the redemption and interest rates will shift over the years. The proportion of interest rates is declining, while the share of repayments is increasing.
The second form is the fixed loan with the so-called repayment replacement benefit. Here the interest is paid to the bank at a constant monthly rate. Again, this is only possible as long as the borrowing rate does not change. The portion that would have to be paid for the amortization is paid into a life insurance. This in turn is paid out at the end of the term of the loan and thus the loan is repaid. On the positive side, the borrower can take advantage of interest rates paid in life insurance.
How expensive is mortgage lending without equity?
An example shows how high the risk premiums of the banks are for mortgage loans without equity. We want to buy an apartment for 400,000 euros and are interested in mortgage lending with 20 years interest rate commitment. The initial repayment is three percent. We have recalculated with the data of Interhyp AG (as of 27.03.2017).
While a financing sum of 50 percent of the object value only accounts for 1.51 percent of the borrowing rate, the best interest rate for a financing share of 75 percent of the object value already increases by 9.93 percent to 1.66 percent bound debit interest. It gets really expensive in the case of full financing, ie financing without equity capital: an impressive 2.65 percent increase in the borrowing rate. This is 59.64 percent more than financing 75 percent of the purchase price and 75.50 percent more than financing 50 percent of the purchase price.
All data for our example tabulated:
|loan||200,000 euros||300,000 euros||400,000 euros|
|Property value||400,000 euros||400,000 euros||400,000 euros|
|target rate fixation||20 years||20 years||20 years|
|Tied debit interest rate||1.51%||1.66%||2.65%|
|Effective interest rate||1.52%||1.67%||2.68%|
|Monthly Rate||751.67 EUR||1,165.00 EUR||1,883.33 EUR|
|Share of the loan in the purchase price||50%||75%||100%|
|Remaining debt at maturity||60,011.47 EUR||86.692,88 EUR||83,951.77 EUR|
Date: 27.03.2017, Source: own calculations
The interest for mortgage lending will be staggered after the so-called mortgage lending, ie the share of the loan in the value of the property. As a rule, the best interest is only available on a mortgage lending of up to 60 percent of the real estate. 40 percent should therefore be in the form of own funds. Instead of the mortgage lending, many banks and intermediaries also give the so-called mortgage lending value. This is about ten percent less than the purchase price for a self-used property. Thus, 60 percent of the mortgage lending value would correspond to about 54 percent of the purchase price or mortgage lending.
Mortgage lending without equity is much more expensive than one with corresponding equity. Therefore, you should only finance with sufficient equity or without equity if you can afford the much higher monthly installments in the long term. Try not to finance more than 75 or 80 percent of the purchase price in order to avoid excessive interest premiums. Our revenue-spending calculator helps you in determining your monthly free capital.
Cost of real estate loans in Germany
The mortgage broker Dr. Plein published in 2018 study results on the amount of initial financing for real estate acquisition in Germany. The study shows in which federal states the average loans were highest or lowest. From this it can be deduced which locations are more expensive or cheaper.
Of course, the income structure plays an important role, but the study says a lot. For example, the loan amounts in 2017 were again highest in Hamburg and on average each house builder and apartment buyer borrowed more than 353,000 euros there. That’s about 12,000 euros more than a year before that. And this despite the fact that interest rates are still at historically low levels.
* Average loan amount for real estate loans 2017
Target group of banks and positive aspects
Young families are one of the target groups for banks. Why? Families usually have a good income, but usually have not yet formed any relevant reserves. The least saved is more likely to be scheduled for unforeseen expenses. In a full financing this scope remains, z. B. if repairs are to be made on the house.
The advantage of having a full financing, apart from the permanent liquidity, is that those who are willing to buy or build can decide to buy faster and do not have to wait many years before buying a home. The dream of owning a home can become reality at an early age and nobody has to wait until he has saved tens of thousands of euros as equity. For an amount of 250,000 euros for the home purchase 20% (the recommended equity), for example, 50,000 euros.
What negative points are there to consider and what problems can arise?
The interest rates for a full financing are comparatively high, since the banks let themselves be paid by the interest the higher risk of the missing equity – and thus a part of the usual collateral. In addition, the burden in the eradication is higher, because the rates must be set higher. After all, more money is lent, but the repayment period is not infinitely expansive.
Tips for builders
Without a secure income at a level sufficient for the banks, full financing is an absolute utopia. No bank is so generous to lend money if the repayments are doubtful. It is therefore important that the higher income will continue to flow in the coming years. It is also advantageous if at least the additional costs can be covered by equity. Anything over 100 percent will be charged with even higher interest rates.
Even if the new offers mean that many more people can afford their own property, nobody should fulfill this dream prematurely. The funding has to be solid! The center of life should be in the same place for the foreseeable future. If a quick sale has to be made due to a job change, high losses are likely. This also applies to many civil servants, due to a possible transfer.
Runtime trap: low interest rates and low eradication lead to an unsightly effect on mortgage lending: the so-called maturity trap. As you can quickly determine yourself with our amortization calculator, it takes about 56 years to pay a building loan of 100,000 euros at 2.00 percent interest pa and 1.00 percent repayment. Even an increase in the repayment rate to 2.00 percent shortens the loan by almost 20 years, so that it is completely repaid after 36 years.
Choose the highest possible repayment rate in the low-interest phase. Pay attention to the monthly burden and that it does not bring you to financial limits. That’s how you intelligently shorten the repayment term. If the financing goes over 100 percent, the minimum repayment should be even three percent. Special repayments should also be used. The interest should be fixed for 15 or 20 years. After ten years, the contract can be terminated with a six-month period, which creates optimal conditions for follow-up financing.
However, if the interest rate was comparatively low when the contract was concluded, follow-up financing should be taken to ensure that interest rates are also low. If they are higher, a dismissal should be waived. Due to the semi-annual termination possibility, however, the financing planning can be made very well.
One possibility for obtaining certainty about the further course of financing in advance is the forward loan. This conclude builders and investors some years before the end of the fixed interest period, if the interest rate makes sense.
A loan for full financing is not given in any amount. As a rule, he may not exceed the mortgage lending value of the property. This means that no money is lent that is not used directly for the property, ie does not relate to construction or purchase value, additional costs etc.