2024-08-20 11:19:39
Two simple tips
This is how homeowners save up to 11,000 euros
20.08.2024 – 12:29Reading time: 3 min.
Homeowners who need a new loan for their property can save thousands of euros with two simple tricks. We’ll show you how it’s done.
Anyone who took out a property loan ten years ago usually had to pay significantly less interest than they would have to today. This makes it all the more important to keep the interest costs of follow-up financing as low as possible. Model calculations from the comparison portal Verivox show how homeowners can save over 11,000 euros on a new loan – with two simple tips:
- You can save around 7,400 euros by choosing a particularly favorable offer for the follow-up financing of your expiring construction loan and taking into account how your property is likely to increase in value.
- You will save a further 3,800 euros in interest costs through annual special repayments over the next ten years.
In the model calculation, Verivox assumes a construction loan that was taken out ten years ago and is now awaiting follow-up financing. There is still a remaining debt of 232,000 euros. For the prolongation, i.e. for the continuation of the financing with the same bank, the existing credit institution offers the homeowner an interest rate of 3.36 percent. In the current market environment, this corresponds to a financing offer from the middle price segment.
In most cases, you can reduce your interest costs by switching to another bank for follow-up financing. “Even if your current bank was still cheap ten years ago, other providers are very likely to offer better conditions in the current market environment,” says Verivox Managing Director Oliver Maier.
The pricing of individual banks always depends on their current business policy and varies occasionally. “Those who want to fill their loan books in the short term position themselves in the market with particularly low interest rates.”
The financing expert points out another advantage that switching banks brings from the customer’s perspective: “In contrast to the old bank, a new credit institution will always re-evaluate the property for its terms and conditions. Due to the significant increase in property prices in recent years, this very often has a positive effect on interest rates.”
According to data from the Federal Statistical Office, prices for owner-occupied residential property have risen by an average of around 60 percent over the past ten years. In order to take into account the simultaneous loss of value due to aging, Verivox only assumes a 40 percent increase in value in its model calculation. Instead of 340,000 euros as it was ten years ago, the property is now worth 476,000 euros. Homeowners benefit from this in terms of the interest rate for their follow-up financing.
This is due to the so-called loan-to-value ratio. “Those who take out a loan of less than 60 percent of the property’s value benefit from particularly attractive interest rates at many banks,” explains Maier. Without the increase in value, this limit would not be exceeded. But after the revaluation, the loan amount for the follow-up financing is only just under half the property’s value.
At low-cost banks, homeowners can obtain follow-up financing under these conditions at an interest rate of just 3.06 percent. With these conditions, you will pay a total of 7,400 euros less in interest over a ten-year term than if you were to continue your loan with your original bank. Instead, the money goes towards repaying the loan and reducing your remaining debt.
With regular special repayments, borrowers can reduce their interest costs even further. “Annual special repayments of up to 5 percent of the loan amount can often be agreed with the bank without this additional flexibility having a negative impact on the interest rate,” says Maier. “With each unscheduled repayment, the remaining debt and thus also the interest portion of the monthly installment decrease. As a result, the loan is paid off more quickly and the interest costs are reduced.”
In Verivox’s model calculation, the homeowners contribute annual bonus payments from their employer in the amount of 2,500 euros to the financing as special repayments. In total, this means that an additional 25,000 euros are used to repay the loan over the ten-year term of the follow-up financing. Compared to financing without special repayments, the remaining debt is reduced by around 28,800 euros by the end of the fixed interest period. The special payments mean that the borrowers have saved a further 3,800 euros in interest.
However, there is one disadvantage to refinancing the construction loan to another bank: property owners must resubmit all relevant documents for the loan decision as part of their financing request. In addition, the registered mortgage in the land register must be transferred from the old bank to the new bank.
“The effort and costs are manageable,” says Maier. “Some of the documents required are usually still available from the first financing request and the additional proof of salary and assets required can be quickly compiled. Depending on the individual case, the costs for the mortgage assignment usually amount to a few hundred euros. Given the high potential for savings, time and money are almost always well invested.”