Interest rate risk,
With his current income in the course of mortgage lending, he becomes “a pensioner”. With increasing speed, a loan is repaid, the less interest is due. Interest rate risk, what does that mean in concrete terms? The historical level of interest entices some young families to realize their dream of owning their own four walls. But even in phases of low interest rates restraint is appropriate, since interest rates are not in limbo. Rather, the short-term loans are exposed to so-called interest rate risk. Interest rate risk is the risk that interest rates may change over a longer period of time.
Even if you have just taken out a cheap microcredit, this is important for future development. Increases the construction rate, this also increases the expenses for your refinancing. If your first debt expires, but the loan amount has not been fully repaid, you will need to raise additional debt capital at then prevailing and possibly deteriorating conditions as interest rates have risen in the years that followed.
The easiest way to avoid the risk of interest rate changes
In this way, interest rate risk can quickly turn your desire to own your own home into a nightmare with high monthly interest costs. The easiest way to avoid the risk of interest rate changes is to fix the borrowing rate over a longer period of time. Loans with a residual maturity of 20 years or more are calculated from the outset at an interest rate that is approximately 0.5 to 0.8 percentage points higher than half-maturity contracts, but the consumer is hedged against interest rate risk over the long term.
The balance is either settled immediately or rescheduled to more favorable terms. For loans with such a long fixed interest period, the key is that 10 years after the loan has been fully paid out, they can be terminated at any time with a notice period of 6 months, as this is required by law (§ 489 BGB). One way to ensure that the construction is carried out against rising interest rates is the simultaneous conclusion of a home savings contract.
This saves costs and at the same time secures a subordinated home savings loan with which the future residual debt can be repaid. In particular, building owners who conclude construction financing without own funds can significantly reduce the residual debt and the duration of the financing. So you can now secure the cheap mortgage rates, even if your current loan offer does not expire for up to five and a half years.