Types of mortgage loans
On the one hand, mortgage loans are the most common form of real estate financing. On the other hand, there are always confusions around the mortgage loan – from the conceptuality, the selection of the right loan option to the termination of a mortgage loan. In the following, our website 4 clarifies the 7 most frequently asked questions, provides you with a mortgage calculator and gives tips on the topic of mortgage loans.
Definition: What is a mortgage loan?
As mortgage loan colloquially all loans are designated for which a so-called land charge is entered in the land register as collateral. The lien serves to enable the lender to realize the security, that is: to sell the property and to recover from the proceeds the outstanding loan amount. This option, in the event of the borrower’s late payment, significantly reduces the credit risk of the bank, so that the borrowing rate for these loans is significantly lower than the interest rate for loans without collateral, also referred to as a plain loan.
Why is mortgage talk and not mortgage?
Actually, the term mortgage loan is not entirely correct, because there are two types of real estate liens – the mortgage and the mortgage. The mortgage is not tied to a particular loan, this relationship is established only by the Zweckbindungserklärung. It stipulates that the mortgage is to be used to secure a specific loan. A mortgage backed loan is also referred to as a mortgage loan.
“Real” mortgage loans
The mortgage loan in the literal sense is a loan in which the land charge is entered in the land register in the form of a mortgage. The mortgage is – unlike the mortgage – exclusively for the loan and can not be used elsewhere. The mortgage is a monetary claim of the bank, which decreases with each repayment of the borrower and goes out with the full repayment of the loan. On the other hand, a mortgage remains in full even after the loan has been repaid if no cancellation is required.
What types of mortgage loans are there?
There are many types of mortgage loans, the most common is the so-called annuity loan, in which the monthly installment payable to the bank always remains the same, with the interest portion decreasing and the repayment portion rising as the loan matures. But other forms of mortgage lending are secured by a mortgage. Thus, a mortgage loan can also be completed as a variable loan or as a term loan. In the case of a variable loan, the interest payable adjusts to the current market interest rate every 3 months. In the case of a term loan, the loan is only to be repaid at the end of the debit interest payment. For an overview of the most important types of mortgage loans, see Other Types of Loans.
How do you find the right loan? With our mortgage calculator!
The mortgage calculator is suitable for anyone who already has a rough idea of what the future loan should be about. Simply enter the amount of the loan into the mortgage calculator and the calculation quantities interest, repayment rate and debit interest in years. So you can quickly see what monthly rates would arise and when the loan would be paid off – including repayment plan.
Mortgage loan comparison: How do I get the cheapest interest?
- The mortgage rates vary daily, sometimes every hour. The amount of interest depends on
- General interest rate and thus the interest rate policy of the ECB
- The loan type – e.g. Annuity Loans vs. Variable loans
- The interest rate commitment – the longer the bond, the more expensive the loan
- The mortgage lending – the more you use the mortgage lending value determined by the bank, the higher the loan interest rate
The result of the credit check that a bank carries out prior to lending.
In the current low-interest phase, most borrowers are well advised to secure the interest through a long borrowing interest, provided a correspondingly long use of the property is planned.
The payable interest premium for a 10-year fixed interest rate instead of a 5-year-old currently amounts to just 0.2 to 0.5 percentage points. In individual cases, a fixed interest rate until the complete loan repayment can make sense, that would be to complete the mortgage loan as a so-called VA loans (Loan program for or American veterans).
In order to get the most favorable terms for a mortgage loan, you should start an individual financing request at a comparison portal. In this way, you can compare the interest rates of more than 300 banks – in terms of their specific financing project and your specific personal situation.
How can I repay or repay a mortgage loan ahead of time?
Most borrowers do not succeed in repaying a mortgage loan at the end of the first fixed interest period and are accordingly dependent on follow-up financing. This can be done either in the form of a prolongation or rescheduling. In the first case, the loan amount is extended to basically the same loan conditions at the currently financing bank, while the bank partner is changed as part of a rescheduling.
Premature detachment, i. Years before the actual debit interest payment ends, it is usually only possible to pay a prepayment penalty. However, a tied borrower can secure the current cheap mortgage rates for some banks up to 5 years in advance, almost all banks up to 3 years in advance – through a so-called forward loan. The interest rate hedge currently costs about 0.02% interest charge per month, for each month, which is to be hedged beyond the non-provisioning time.
What happens to the mortgage or the mortgage on termination?
If a property is secured by a mortgage, the further procedure after a termination depends on whether the mortgage is still needed or not. If the mortgage is to be used to secure a new financing from another bank, most banks agree to an assignment of the existing mortgage to the new bank. If the land charge entry of a bank is to be finally deleted, the corresponding bank will issue a cancellation authorization only if the loan repayment is secured – e.g. by a notary in the case of a real estate sale, that the financing proceeds to the financing bank.
Unlike a mortgage, a mortgage requires a bank’s claim against a borrower only at the moment the loan is paid out. Conversely, in the case of a termination, it is only when the borrower repays the loan that the personal, contractual claim of the financing bank for loan repayment lapses.
In the case of a mortgage, the bank has not only a debt claim against the borrower, but also a real claim against the property and its assets, which are also held liable. Both claims are legally independent of each other, e.g. A father has had a mortgage registered for a property that serves to secure a loan from the daughter. Personal and physical claim expire only with complete loan repayment. In a partial repayment of the loan, the mortgage – in contrast to the mortgage – can not be used for a possible new loan.
A home is one of the biggest investments that many of us will ever make. One advantage of owning one is that it can provide great financial security and become a good source of cash. Homeowners who need a quick financial solution or want to make another investment, for example, can use their home equity to earn money.
“Equity” refers to the estimated market value of a home, less what is owed to it. If a home is owed at $ 400,000 with $ 150,000, the available equity would be $ 250,000.
Two common financial instruments that allow real estate owners to borrow against this accumulated equity are a home equity loan and a home equity line or HELOC. While both funds go against the stock value, they work very differently and are geared to different loan needs. The main difference between the two is how the funds are paid out.
Home equity loans (HELOC loans )
Since the loans are paid once, no additional money can be withdrawn from the loan (as with HELOCs). These loans use regular monthly repayments over a set period of time – just as a primary mortgage is paid in fixed installments. This financing model is ideal for borrowers who prefer the safety of fixed rates and for those who need a sizeable sum for another investment, such as a second home or car, or for debt consolidation.
As home prices are rising across the country, home loans and HELOCs provide an attractive, low-cost way for homeowners to lend against their bricks and mortar. They are a logical financial opportunity to finance everything from renovations to college fees and an investment property.
Since you place your home on the line, avoid using these funds for frivolous purposes or borrowing more than you can repay. Basic questions to consider are whether you really need the money, the purpose of the loan, how much you intend to borrow (and how much you can repay comfortably), ideal repayment structure, and current interest rates. Educate yourself on the online calculator of yours Bank or your bank over numbers. And as with any financial product, you should definitely look for the best deal.
An FHA loan is insured by the Federal Housing Authority (FHA), which is part of the US Department of Housing and Urban Development (HUD). The FHA does not give the lenders money, but protects the lenders through Mortgage Insurance (MIP), in case the borrower fails to meet his or her payment obligations. Open to all real estate buyers, the FHA loan programs are designed for families whose low to moderate income does not qualify them for conventional mortgages
FHA loan programs are particularly beneficial for real estate buyers with low cash reserves. The interest rate on FHA loans is the current market interest rate, with the down payment requirements of an FHA loan being lower than conventional loans.
Under the retirement of real estate in this contribution the purchase (sale) of a property (house or flat) is understood against an annuity or a time pension. In general, the term “reverse mortgage” or “real estate pension” and sometimes also “reverse mortgage” has prevailed for this purpose. Thus, this particular form of financing is a special, rather rare form of mortgage.
Such property retirement offers several advantages for both the seller and the home or home buyer.
Example: Savings banks and banks tested the acceptance of a real estate pension in selected regions with very little success under the name “promotional real estate pension”. By contrast, this type of fundraising and old-age provision under the names “Reverse Mortgage” and “Lifetime Mortgage” has long been established in the USA and Great Britain.
Real estate pension: purchase / sale against pension payment (reverse mortgage)
One should not prematurely disqualify the design of a house sale against a life annuity as a “bet on death”. The life annuity agreement may include, for example, a pension guarantee period for the heirs, a usufruct or right of residence or an additional one-off payment, or, for example, linked to the cost of living index. The sale of a house against a time allowance allows for a very accurate calculation of income and expenditure for both sides. For the buyer, the purchase of real estate on a pension represents a completely different form of real estate financing.
The reverse mortgage is a type of credit agreement in which the property serves as collateral. The payment can be arranged as a one-time payment or in installments or as a lifelong pension. Reverse mortgages are particularly appealing to retirees who have no major financial resources outside their own home. Your special advantage: There are neither interest nor repayments for the “borrowed credit” to pay. The risk of depreciation of the property is usually borne by the lender. The Eigenheimer can usually be given a lifelong right to live in his house or in his apartment.
Reverse mortgage as bank loan (reverse mortgages)
Slow and sluggish, banks also offer basic models of “reverse mortgage (reverse mortgage = reverse mortgage or reverse mortgage)”. The basic grid provides: The seller should be at least 60 years old and he remains the owner of the house or apartment. Land ownership is increasingly burdened with a land charge in favor of the bank. The limit is the usual mortgage lending value of the property (50 to 80 percent of the market value).
Whether offers such as the “ImmoRentenPlus” or other products will prevail remains to be seen. Skepticism is appropriate. For example, the “Hannoversche Leben” had already withdrawn its “reverse mortgage” from the market and replaced it with a “pension mortgage”. This annuity mortgage is practically a loan over up to 50 percent of the mortgage lending value of the property.
Calculating a reverse mortgage loan
The plan is to pay a monthly pension up to the age of 110 years. Internally, the banks calculate with an age of, for example, 95 years. The longevity risk – ie the period when the bank customer is older than 95 years – borne the Banbk itself or concludes a corresponding reinsurance. The problem for the bank is the forecast of the mortgage lending value in, for example, 30 years.
The bank will receive the amount paid back in one fell swoop if the owner dies or moves to a retirement home. At this time, therefore, the loaned property must be sold by the owner or the heirs. At least, the banks speculate on this, because they do not want to deal with the utilization of mobile.
The owner of a property can of course also implement his own “house retirement” by simply lending the real estate. Example: The house is fully paid and the owner takes out a loan amounting to, for example, 60 percent of the land charge at the bank on the still unpaid mortgage. The amount received is paid into a private pension insurance as a lump sum. He does, however, enter a “bet on his life”.
The reverse mortgage with a regular bank payment, however, has the advantage that at the end of the term only the amount received plus the interest must be repaid. It is important for the real estate owner for the free choice of the time of repayment. For who knows exactly when he will move in the future or change his own life circumstances seriously.
Agreement of a right of residence
The sale of a house can be made against a lifelong or temporary residence. The right of residence may extend to one or more persons (for example a married couple). The notary contract of sale stipulates that the seller of the property may stay temporarily or lifelong in the property. If the buyer does not make the pension payments due after the purchase contract, he forfeits his claim to the subsequent transfer of the property. An annuity contract should therefore, from the perspective of the seller, include a reassignment clause governing the conditions under which the contract is to be reversed. Example: More than two monthly installments are backward.
As a rule, the right of residence can also be used economically by renting out the property by renting it out. Example: The seller moves to the nursing home. He can earn rental income and the pension payments continue to be paid by the seller over the set term.
The annuity may be inflation-protected, i. Pension payments, for example, adjust to the general cost of living. The amount of an annuity or annuity depends on many factors: value of the property (for example, market value appraisals), a possible one-time installment, age of the vendor, pension guarantee period, affiliated annuity, value of the right of residence, etc.
Affiliated annuity – abbreviated annuity – annuity guarantee
An affiliated annuity is understood as the agreement of an annuity on the life of several persons (for example a married couple). But it can also exist between parents and children. With the death of the persons expires the pension payment, unless a pension guarantee period has been agreed. In that case, the pensions must be paid in any case over the specified period. The abbreviated annuity is a mixture of annuity and life annuity. It is limited in time and expires when the life annuity premature death.
Speculation as a motive for the buyer
The acquisition of a property (apartment, house, land, apartment building, etc.) is also possible with low equity. The self-use is not yet considered and on the “dream home” is still “hand laid”. Speculative investors are enriching their “asset strategy” with a life annuity purchase. Anyone who expects rising real estate prices will almost always have a speculative motive with their real estate pension.
From the point of view of the house financing it remains to note: The usual equity does not have to exist. Property ownership can be justified without much waiting even in younger years. It eliminates the need for savings on building societies or the formation of sufficient equity.
Advantages of the reverse mortgage
The principle of reverse mortgage is very common in the US among pensioners. Retirees use their home as collateral for a loan that is paid out to them in monthly installments. The house remains in their ownership. Over time, the loan debt increases and the house is worth less for the retiree. The principle of reverse mortgage is an important part of retired financing in the US.
Another advantage of the reverse mortgage may be the savings in inheritance tax. Example: The niece nurses the bedridden uncle. If she inherits the house at the death of her uncle, a high inheritance tax is due. It is probably better and fairer if the niece’s uncle already sends an amount each month from the reverse mortgage. Incidentally, the uncle would probably strengthen the niece’s motivation to look after him.
In a promotional offer for a real estate pension, the following points are listed as benefits:
Although you may take out a loan on your real estate property, you will continue to be an unrestricted owner and will continue to live there
- You will receive a full cash payment, there are no taxes
- There is no runtime limit
- As long as you own your real estate property, there are no interest and principal payments
- The interest rate is fixed for the entire term and will not be changed
- You are protected from over-indebtedness. At the end of the contract, the maximum value of your real estate property must be repaid
Rental purchase model is not a retirement
In particular, in newspaper ads advertised for hire-purchase models. By this is to be understood that prospective customers first rent an apartment (for example, from a housing cooperative) and form capital during an accumulation phase, in order to acquire the flat later. The legal situation is significantly worse because there is a risk of insolvency in the hire-purchase model. The hire purchase contract is also gladly designed so that the essential rights remain with the seller (here: housing association).
Conclusion: The sale of a property against an annuity or a modified life annuity offers many advantages if properly designed. However, the “lid to the pot should fit”. Only when buyers and sellers see “intersections” in the contract design will there be a mutually satisfactory contract. Very important here is the right advisor. A notary with special knowledge and experience in real estate retirement is certainly the best choice to make an apt purchase contract for real estate retirement. The alternative is: “Do nothing or simply sell your own property”. The sale proceeds can be used to finance the move to a retirement home, to a smaller, age-appropriate apartment and often also to a pension insurance. Despite the benefits of the reverse mortgage as a real estate pension is hardly accepted in Europe and USA.