What is a construction loan

Other terms used today for mortgages are real estate loans, mortgage loans or annuity loans. Read our tips on building loans here. You are not alone with your dream. The construction loan is a current account credit with mortgage cover to finance new buildings, conversions and extensions. It is a purpose-built loan.

A building loan, what is it?

A building loan, what is it?

For individual support, the banks are the first address for lending. Online direct banks also lend, often at lower interest rates. As a rule, however, the communication is only made there by telephone or via the intranet. In order to apply for a loan, the applicant has to meet certain requirements: equity is of great benefit for a low-interest loan – ideally 20% of the total loan.

This not only reduces the interest, but also the loan amount and thus the interest expenses. However, you should not only focus on interest rates, but choose a provider according to your needs and the following contractual conditions: Fixed interest period: It determines the length of time that a certain interest rate is guaranteed to you.

In the case of an inheritance or the term of a death insurance, for example, you can reduce the loan amount with a special payment. For many banks, an annual special repayment of up to five percentage points of the loan amount is not yet associated with additional costs. This is a compensation payment that you must pay to the house bank if you want to terminate your employment contract early – for example, in the event of a divorce or a change of residence.

The monthly interest rate consists of interest and repayment of the loan. At the beginning, the repayment share is low and the interest portion is large. The most common type of construction loan is an annuity loan. They prefer to play safe with variable repayment. As a rule, the loan installment can be changed two to three times during interest rate fixing.

Details of the construction loan

Details of the construction loan

There are many loan types available as medium term consumer loans, but there are also very long term bonds. These include construction loans. As the title implies, this special loan primarily serves to finance the construction or purchase of a property.

Other terms that are used today for home loans are also real estate loans, mortgage loans or renewal fees. The special feature of construction loans, in addition to their long-term nature, is that they can be granted at a relatively favorable interest rate level. For example, while you have to pay an interest rate between 7-10% on a consumer loan, you can currently have a construction loan with an interest rate of less than 4%.

This is a security interest in real estate, which ultimately can also be used by the financing bank to force the borrower to sell the financed real estate if the loan rates are not paid. If the mortgage loan is used in the form of a mortgage loan, the borrower may choose an interest that will be contracted for a period longer than five, ten or more years.

Alternatively, it may be agreed that interest rates are adjusted at intervals to the average market interest rates of the credit market. A construction loan is usually a very flexible loan, as often a special repayment is possible without additional costs.