Repayment loan – A repayment loan is a generic term for loans in which a specific repayment line is agreed over a fixed term. In the real estate sector, it is usually an annuity loan, whereby the resulting repayment installments are composed of an interest and a repayment portion. The advantage of an amortising loan is that the borrower pays off a fixed amount per month, thus reducing the remaining debt. The disadvantage, however, is that the residual debt remains relatively high at the beginning and only decreases steadily in the last years of the term.
Repayment loans at a glance: Financing a property with an amortising loan
- Agreement of a repayment line over a fixed term
- The repayment instalments are made up of an interest and redemption portion
- Advantage: borrower pays a fixed amount per month, which reduces the residual debt
- Disadvantage: Residual debt relatively high at the beginning and decreases only in the last years of the term
- Repayment loans with a repayment rate of 1% are usually only paid off after 25-30 years.
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