The right financing for the purchase of a property is one of the most important decisions you have to make as a prospective homeowner. Equity plays a crucial role here, as it has a direct influence on the financing options and the long-term financial burden. Here I compare 3 different financing scenarios for you, from full financing to contributing equity, and analyze the impact on monthly payments and overall costs. We also look at why it may be advisable to retain a certain amount of equity and how this affects the interest rate!
First of all: Why is 110% or full financing worthwhile?
As an investor, you prefer to take out a real estate loan and pay it back over a long period (approx. 35 years). This has advantages: you need less equity, so you can “invest more money” (because you don’t need any). This allows you to generate more rental income. Yes, there is interest, but there is also inflation. This devaluation of money ensures that loan installments actually become “cheaper”. Learn more here: Real estate as an investment Advantages.
That’s why it’s worth calculating the 3 scenarios!
Full financing of a property: Costs
Example of full financing: Assuming the purchase price of the property is EUR 240,000 and no equity is contributed:
Purchase price of the property: 240,000 euros
Equity: 0 Euro
Loan amount: 240,000 euros
Conditions of the loan:
Interest rate (effective): 2.5% – depending on the bank / credit rating, the interest rate for full financing may be higher, by 0.05 to 0.1 %
Example of 110% financing – In this scenario, 10% of the purchase price is financed in addition to the purchase price for ancillary costs and reserves:
Interest rate (effective): 2.5% – depending on the bank / credit rating, the interest rate for full financing may be higher, by 0.05 to 0.1 %
Term: 20 years
Monthly installment: 1,345.00 euros
Financing with equity: Costs
Example with equity – Assume you contribute 20% of the purchase price as equity:
Purchase price of the property: 240,000 euros
Equity capital: 48,000 euros
Loan amount: 192,000 euros
Conditions of the loan:
Interest rate (effective): 2.5%
Term: 20 years
Monthly installment: 975.00 euros
How to finance a house and condominium?
Choosing the right financing option is crucial to the long-term success of your property purchase. Full financing allows you to buy without equity, but leads to higher monthly installments and overall higher total costs due to interest. Financing with a higher loan amount, for example 110% of the purchase price, can cover the additional costs, but further increases the monthly burden.
Bringing in equity makes it possible to lower the monthly installments and reduce the overall costs, as the loan amount is smaller. This also allows for a better interest rate as the risk for the bank is lower. However, it is advisable to retain a certain amount of equity for unforeseen expenses or repairs.
Ultimately, the best financing option depends on your individual financial situation and your long-term goals. It is advisable to plan carefully, think through different scenarios and seek advice from a financial expert if necessary to make the right decision.
Favorable financing for house & condominium?
Make life easy for yourself and prepare for your house or apartment purchase at an early stage. Step 1 is always to clarify the financing. Put simply:
How much house can you afford? How much apartment can you afford?
Good providers, good conditions, good investment. Compare different providers and their current interest rates and conditions online and free of charge:
https://lukinski.com/wp-content/uploads/2022/11/anschlussfinanzierung-forward-darlehen-kredit-refinanzieren-banken-vergleich-ehepartner-check-zinskosten-bauzins.jpg10001500L_kinski/wp-content/uploads/2024/04/lukinski-logo-real-estate-investment-germany-house-villa-off-market-clean.svgL_kinski2024-01-05 07:36:152024-02-12 14:47:04Real estate loan with and without equity: comparison of partial, full and 110% financing
