A new record low in interest rate hikes for homebuyers. Interesting facts about capital repayments At the beginning of the 80s construction money was really expensive! The interest rate for real estate financing at this time was 11.5%. Those who had borrowed EUR 10,000 at the time paid interest of almost EUR 2.
Interest rates on real estate finance today are sometimes less than 1.5 per cent. Anyone who lends a sum of EUR 10,000 to the house bank for a property now pays only EUR 125 interest a year.
The interest is the fee paid to financial institutions for borrowing.
In practice, this is one to one and one-half percentage points lower than the proportion to which our clientele can borrow from banks. The exact amount of interest that the consumer pays depends on three different criteria:
With 50 percent equity, a salaried employee gets a better reputation than a freelance musician with no regular salary and only 10 percent equity. For example, if you sign a five-year contract of EUR 100,000, you can only pay one percent interest if your credit rating is good. For a 20-year contract, two percentage points of interest would be a good example.
In addition to the interest there is still the repayment. The loan agreement specifies a certain “initial repayment amount”. While in the past, in periods of high interest rates, it was usually a percentage, today it is two to three percentage points. If you agree on a repayment rate of one percentage point, you might think, “I pay back one percentage point of the amount borrowed each year.
Because it takes 100 years for the loan to be repaid. This is where the interplay of interest and redemption comes into play. In short: five percentage points interest, one percentage point redemption. That’s six percentage points, that’s 6,000 euros a year, 500 euros a year. The EUR 500 in the first month of the loan is composed as follows: EUR 83.33 repayment (1st installment)
EUR thousand divided by twelve months) and EUR 416.67 interest (EUR 100,000 times five percentage points divided by twelve months). Last Monday, the total debt will be no more EUR 10,000, but only EUR 99,916.66. 83.33 EUR have already been paid! The amount of EUR 500 in the following month will be distributed as follows:
416,32 EUR interest, 83,68 EUR remain for the repayment. Every day, year after year. The repayment rate rises, the interest rate decreases. In this example, with five percentage points of interest and one percentage point repayment, the loan would pay off after 36 years. If a repayment rate of two percentage points had been agreed, this loan would have been repaid after just over 25 years, and with a repayment rate of three percentage points, the total debt would have been repaid after 19 years and nine months.
So, the higher the repayment rate, the faster the loan will be paid out.
If you look at these metrics and connections, you will also understand the following rule of thumb: the higher the interest, the faster the loan will be paid out. In addition to the repayment amount, this has an impact on the term of the loan, but also on interest. Example: Once again EUR 1,000, this time with two percent interest that can be realized today, and a percentage repayment.
The monthly interest rate would only be $ 250, but in this list it would take over 55 years for the loan to be amortized! The interest rate is currently at a historically low level. Building money has never been cheaper. Worst scenario: Imagine that your now-beneficial contract ends in 15 years, you’ve just paid back the minimum amount, and the interest rate is ten percentage points.
Unfortunately, below par, because no one can afford it because of the high interest rates. It now makes sense to enter into longer-term arrangements with the principal bank with the greatest possible repayment and, if possible, voluntary unscheduled repayments.