The mortgage interest accrues when you take out a real estate loan. This increases the repayment amount of a real estate or construction loan. The financing bank covers the costs of its service with the mortgage interest. Either the mortgage interest is added to the agreed installment payment or – in the case of a final loan – to the one-off repayment amount. In the current low interest phase, mortgage rates are particularly cheap.
What is the mortgage rate?
Credit institutions charge mortgage rates for real estate or construction loans. This is also called real estate interest, building loan interest or building interest. The lending bank covers its lending costs by adding a mortgage rate.
Low mortgage interest due to land registry security
Mortgage rates are low compared to other interest rates, such as consumer loans. This is due to the stable collateral that the bank receives from a mortgage on the financed property. The bank is in the land register as a lender. In the event of the borrower’s insolvency, the seller sells the property and settles the remaining debt from the sales proceeds.
The Cream Bank influences mortgage rates
The Cream Bank has a direct influence on the amount of the mortgage rate. In low-interest periods, banks get the funds they need to lend to their customers particularly cheaply. They are encouraged to pass on the good conditions to the borrowers and generally only charge small interest premiums. In high-interest periods, the mortgage rate is correspondingly more expensive.
Variable or fixed rate real estate finance
Real estate finance has either a variable mortgage rate or a fixed-rate term. If the borrower chooses a variable interest rate, the mortgage rate is based on the three-month Euribor and is adjusted on a quarterly basis. In the case of a fixed-interest loan, the borrower secures the currently agreed mortgage rate over a term of five to thirty years.
Loan term, loan amount and creditworthiness as factors influencing the mortgage rate
With a short fixed-rate term, the mortgage rate is lower than with a longer one. If the borrower wants to secure an interest rate for many years, the credit institution charges a premium. With the fixed interest rate agreement, the bank precludes a possible participation in a later interest rate increase. The bank compensates for the lost profit with the premium. If the customer seeks full financing entirely from loan funds, the bank charges a higher interest rate, but also bears a higher risk of loss.
The mortgage rate varies depending on the amount of the loan. The most important factor is the customer’s equity ratio. If a customer covers a large part of the financing requirements from own funds, the bank grants a low mortgage rate.
The customer’s credit rating also influences the amount of the mortgage interest. If the bank fears that payment irregularities will occur during the term of the loan, it will make the mortgage rate more expensive. This way it covers a possibly higher administrative effort.
Course of the mortgage rate
Some banks give mortgage loans with a real estate interest rate of less than one percent. The current low interest rate policy of the Cream Bank justifies the low mortgage rate. If the borrower chooses a fixed-interest term, the agreed interest rate is binding for both the bank and the borrower over the agreed term.
At the end of the fixed interest period, the borrower receives a new interest offer from the financing bank. He either opts for a variable interest rate or concludes a new fixed interest term. In addition, at the end of the fixed interest period, he can obtain rescheduling from another bank.
Over the medium and long term, credit institutions expect mortgage rates to rise moderately in the future. In the current low interest rate phase (as of 2019), borrowers should therefore opt for long-term fixed-rate terms. In this way, you can secure the favorable mortgage rate for the future.
Calculating the mortgage rate
Each credit institution calculates the mortgage rate individually. In doing so, the bank takes into account various criteria, such as the loan term, loan amount and credit rating of the customer. With their financing offer, consumers receive a financing plan that shows the amount of the installment, the repayment component and the amount of the mortgage interest.
FAQ: Mortgage rate
What is the current mortgage rate? (2019)
The current mortgage rate varies between 0.40 percent and 1.47 percent for a fixed-interest term of five years, depending on the bank. The interest rate is higher for longer fixed-interest periods. For example, borrowers can expect mortgage rates between 1.02 percent and 1.87 percent for a fifteen-year fixed-rate term.
What are the conditions for using the mortgage interest?
Mortgage interest accrues in the context of real estate or construction financing. This is the only way that credit institutions grant the favorable interest rates. To secure the loan, they require the registration of a land charge. This is entered in the land register of the property with the same amount of the loan amount.
Where is the cheapest mortgage rate?
A credit comparison tells consumers which banks offer cheap mortgage rates. Since individual criteria such as personal customer creditworthiness influence the mortgage rate, the comparison calculator on the Internet initially only gives a non-binding overview.
Tip: The free loan comparison from Good Finance can be used to offer a personal mortgage rate.
Is the mortgage interest tax deductible?
Consumers cannot deduct mortgage interest on private real estate financing that serves their own needs. However, if the financed property is rented out or used commercially, landlords or investors can claim the interest for tax purposes. Tax advisors provide expert information on the tax deductibility of the mortgage interest.
Conclusion: Compare interest rates before starting real estate financing
Credit institutions adjust their mortgage rates daily. Since the amount of the mortgage rate depends on individual factors, it is advisable to obtain several loan offers and compare them.
Consumers receive a quick, anonymous and free comparison of current mortgage interest rates via the loan comparison calculator on Good Finance. The stated annual percentage rate is the relevant benchmark. It takes into account additional costs of real estate financing, for example taking out residual debt insurance.