Plan the purchase of a property? Then you should compare the conditions of the construction lender with other providers. Basically, a construction lender offers a loan against cost to provide. You should compare the conditions in order to save permanently later on.
What you should compare
It is worth comparing these features when financing a construction:
- Payoff amount of the loan
- Processing fees
- Loan provision costs
- Interest rates: fixed rate or floating rate
- Term
- Repayment: Repayment start and repayment period
- Lending limit and mortgage lending value
You should pay special attention to the interest rates. In general, a fixed interest rate offers you a better basis for calculation and planning security and is recommended in low-interest phases. A variable interest rate offers you the possibility of even lower interest rates, as the bank adjusts them to market rates. But caution, here is to be counted among other things also on rising interest rates and an incalculable interest rate development. Therefore, think very carefully about the choice between fixed or variable interest rate! In bad economic times, a fixed interest rate is usually better. In economically good times rather a variable interest rate. The reason for this is that the European Central Bank adjusts interest rates according to the state of the economy and tends to lower interest rates in bad economic times to stimulate the economy – stimulating the economy – and raise interest rates in good economic times – preventing the economy from overheating.
Construction financing bargain
In the case of construction financing bargains, you should inform yourself about the loan-to-value ratio and the loan-to-value limit. A lender usually takes the property being purchased as collateral for the loan. On the property, however, they never get the purchase price of the property as a loan, but the mortgage lending value. The mortgage lending value is usually 80%.
Regardless of the mortgage lending value, there is still the mortgage lending limit, which the lender sets individually. The lending limit may be below the actual mortgage lending value of the property to be purchased. The credit line outside the lending limit is then usually set with higher interest rates. A supposed construction financing bargain therefore need not be cheaper in the end than an apparently more expensive offer. Compare therefore exactly current building interest rates.