Is it still worth buying a property with a mortgage?

For most people, the dream of owning their own home is only possible with the help of a mortgage loan. While mortgage rates remained at a low level for many years, they are now rising significantly again, and even faster than generally thought.

What are the current mortgage rates?

According to Sparkasse are construction financing interest rates currently averaging 3.5 to 4.0 percent effectively. The final amount of the interest rate depends on various factors, such as the Borrower's creditworthiness and the amount of the loan.

It is notable that interest rates have been on average 2.5 to 3.0 percentage points higher since the beginning of 2022.

How does a real estate loan work?

Most people need a bank loan to purchase a piece of real estate. To obtain one, however, the applicant must fulfill various requirements. These include, for example, a positive credit report from Schufa, or correspondingly good creditworthiness, as well as a sufficient level of income. In addition, banks generally require the contribution of equity. Likewise, collateral is needed in most cases. This includes, for example, investments and life insurance policies. Furthermore, a land charge is commonly entered into the land register of the property.

When granting a real estate loan, standard procedure for banks also includes fixing the interest rate for a certain period of time. This is usually five, ten, twelve, or even 15 years. Thanks to the fixed interest rate period, the borrower is able to plan payments definitively for the period in question. However, after the fixed interest period expires, the loan debt is in most cases not yet fully repaid, so a follow-up loan is necessary. Since this is a completely new loan, all terms and conditions are renegotiated, and thus the interest rates as well. The follow-up loan does not necessarily have to be taken out with the same bank; it is also possible to switch to another financial institution.

The repayment of a real estate loan is made in most cases in the form of monthly constant installments. These usually contain, in addition to the principal amount, the respective proportionate interest.

Attention: A real estate loan is a so-called earmarked loan. This means that the borrower is obligated to use the loan amount exclusively for the purchase of the desired property. The bank requests the corresponding proof from the borrower.

Compare loan offers

The financial market is generally fiercely competitive. Consequently, the loan offers from banks can vary considerably from one another. Because of this, it is highly recommended to thoroughly compare the various offers. For instance, one bank might offer a lower interest rate than the competition. Accordingly, it is advisable not to visit only your primary bank to obtain the required mortgage loan.

Tip: Using a free online comparison, it is quick and easy to compare a variety of loan offers.

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When does the revocation period begin for a real estate loan?

In general, a revocation period of 14 days applies, calculated from the conclusion of the contract. However, some credit institutions also grant the possibility of revoking the contract for 30 days. Under certain circumstances, a borrower may even be entitled to a longer period. This is the case, for example, if the real estate loan agreement does not contain all the prescribed information. Then the revocation period only begins when all data is available to the borrower. In such a situation, however, it is a total of 30 days.

Tip: If the cancellation policy contains errors, it is possible that it has no effect whatsoever. In such cases, it may even be possible to cancel the contract years later.

Can real estate financing be revoked by email?

The revocation of a real estate loan must be clearly communicated to the bank. However, what does not need to be included in the letter is the reason for the revocation. In addition, there is no specific form provided by the legislature to be used for this purpose. However, it is essential that the revocation is made in writing. Whether this is done by e-mail, letter, or fax is irrelevant. As a rule, however, it is recommended to send a letter by registered mail in order to have corresponding proof at hand.

What is the next process after the cancellation?

Borrowers who have not received any funds from the credit institution by the time of revocation do not need to take any further action. However, if the bank has already transferred the amount specified in the credit agreement, the sum must be repaid to the credit institution within 30 days at the latest.

Attention: In this case, the borrower is obligated to pay the corresponding interest to the bank for the period between the disbursement of the loan and the repayment of the loan amount. The credit institution calculates the accrued interest to the exact day. The amount is based on the debit interest rate stated in the real estate contract. However, some banks may waive the interest payments in the event of a revocation. This can be read in the loan agreement.

Is a real estate loan still worth it?

Although interest rates have risen, it can certainly still be said in general that taking out a real estate loan is worthwhile. After all, otherwise the dream of owning a home would remain out of reach for many people. However, it is strongly advised not to accept the first loan offer that comes along, but rather to compare various loan offers with one another.

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