The financial question: When rapid repayment of loans waving interest benefits

Banks offer customers rapid repayment of property loans annual discounts of 10 to 15 percent. But the nimble absorber often pays too much.

The low borrowing rates are, whether the loans for the payment of owner-occupied or rented properties are used, dangerous in many ways. By far the greatest danger is the indebtedness if the individuals overestimate their credit rating. Those who have no bacon on the ribs, in spite of cheap credit remains a line in the landscape.
The second danger is the financial collapse in interest rates. Should interest rates rise during the term, the higher rates to the borrower can be a burden that is unsustainable. The third risk is the long repayment if the repayment is low. Who is engaged in the Abstottern of loans to old age, will not enjoy his retirement?

Dangerous quick repayment

And the fourth danger is the overpricing cheaper loans for faster repayment. That sounds like a contradiction, but pay the nimble absorber, although they are the best borrowers for the banks too high prices in general. The difficulties are illustrated by the following example.

A private citizen is 40 years young. He needed to buy a house that costs about 300,000 euros and will even be used even 200,000 euros. Loans of this size cost currently a year from 3 percent if interest rates for 15 years to be committed. The monthly payment for interest and principal is 708 euros if the nominal interest rate is 3.25 percent per annum and the repayment is set at 1 percent. This may seem tempting at first glance because the 708 Euro look like the saved rent, but on closer inspection is to offer full of pitfalls.

Too little redemption makes the heirs no fun

The most sensitive issue is the credit rating of the investor. If the 708 Euro mark the end of the story, there is a risk that the borrower falls over at the first gust of wind. If the man in five years needs a new car, or in ten years, some time will be out of work, private life can get into financial difficulties. Either the car is not affordable, or the home loan is in default.

Also looming in the distant future – specifically in 15 years – the risk that the connection interest rates are higher than the current contractual interest. In a Prolongationszins for example, 5 percent of the new monthly installment will be a high probability of more than 800 euros, and the investors may be charged when the fund will bear no more than 750 euros, break his neck.

The circumstances give cause for reflection. The investor is 40 years old. At this age, the early repayment of 1 percent is sheer madness. Lending rates of 3.25 percent and the repayment of one percent lead to a term of 45 years so that the private citizen is well on the way to take the loan installments in due time to the grave. There may be cheerful natures, who see it as a problem, but sober observer will wonder what these borrowers with their money.

Not only loan even retirement

If no reserves are available on the credit rate addition, the house should not be bought because it exceeds the financial capacity of the investor, if possible. This inevitably leads to the question of how much money should be for the interest and repayment of the loan available.