The desired property is found and for your financing, you have scheduled a 3% eradication , as recommended by many experts. With the help of a first financing calculation you came with a interest rate of 2.5% on a loan term of approximately 24 years. Unfortunately it sometimes happens differently than planned. The desired object went to another prospective customer, whereby also the planned financing became obsolete.
Now the search continues. Some sightseeing later, the joy is twice as big! They have found a new property and interest rates have even fallen from 2.5% to 2%. With a planned repayment of 3%, your loan would be even faster than you thought. But when the financing came, you could not believe it. Despite the lower interest rate and the same repayment , you should now pay 25 ½ years for your loan, that can not be true!
Your financial adviser did not make a mistake and counted correctly
The supposed phenomenon is easy to explain. An annuity loan has a consistent loan rate (annuity) month after month. The rate is composed of the debit interest and the initial repayment rate , in sum this is the debt service . The monthly repayment is settled immediately and the interest is paid on the current remaining debt. As a result, the loan installment will pay less for interest over time and the loan repayment will be higher. With a higher interest rate, the same repayment rate therefore spares more interest costs, leaving more to pay off and thus ensuring a quicker repayment.
With falling interest , the repayment should rise. In our example, if the monthly interest rate cut rate remains the same, allowing for a 3.5% repayment rate, the loan term will be reduced to 22 ½ years.
Do you still have questions about mortgage lending? Or would you like more information on funding, subsidies or similar? Your STI financial partner in Kiel, Hamburg and Flensburg is at your side from the initial consultation through to the purchase price payment. For STI your wishes and possibilities are the focus of personal consultation.