The current low mortgage rates could tempt you to consider building or buying property. But be careful: low-interest rates are not the only criterion that you have to consider when buying property. In addition, building rates do not have to remain constantly low!
Read in this article which holistic aspects you have to consider when planning.
The conditions have to be right for many years
Real estate financing is a long-term business and will have an immediate impact on your personal situation in the next 20 to 30 years. The minimum requirement for such long-term financing is a clear look into the future by answering the following questions:
- How safe is your job?
- Has family planning been completed or what does it look like?
- How will family income develop?
With these considerations, you should not be blinded by the appeal of low-interest rates, because a low-interest rate rarely spans the entire financing period. Even if the interest rate level is low for many years, it can be reversed by unpredictable economic development. Especially with extremely low-interest rates in the first fixed interest phase, an enormous difference in follow-up financing can turn your entire planning upside down.
Example: No one expected German reunification and its economic consequences in the 1980s. With the introduction of the D-Mark in the former GDR in 1990, after years of constant real estate interest rates of between six and seven percent, there was a sudden rise in interest rates to up to ten percent. For many property owners who had to complete their follow-up financing during this time, this led to an additional monthly charge of several hundred D-Marks.
Correctly estimate acquisition and ancillary costs
The costs for the new construction or the purchase of a property are significantly higher than the purchase or production price. Real estate transfer tax of between 4.5 and 6.5 percent of the purchase price is incurred for the purchase of a piece of land or a finished property. The purchase price of a piece of land or a finished property is used as a basis.
Land register entries, notary fees, and other additional costs increase the purchase price additionally. New construction costs rarely remain at the planned level and even when buying a used property, there are usually renovations that often cost more than planned. You can find further details in our article on mortgage lending.
The optimal financing
Ideally, your financing will have an equity share of 25 to 30 percent. You can cover part of the equity capital with the so-called muscle mortgage, i.e. your own contribution to the construction work, but you should not overestimate your strength and abilities.
In periods of low-interest rates, it is advantageous to fix the interest rate for as long as possible, even if the interest rates are somewhat higher as a result. It also makes sense to use the low-interest rate for higher repayment rates in order to shorten the financing period