The loan always has two components: interest and repayment. The bank receives the interest for making the money available. The repayment of the loan amount without interest reflects the repayment.
Costs for the real estate loan
The annuity loan is characterized by constant repayment rates. The monthly rate remains unchanged during the fixed interest period, which provides the borrower with very good planning security. The monthly installment consists of an interest and redemption component. Over the course of time, the composition of the shares changes while the rate remains unchanged: the interest component becomes increasingly lower, while the repayment component increases.
This is due to the fact that the interest is paid on the remaining debt and since this is continuously reduced by the repayment, the interest component falls. An initial repayment is therefore spoken of when the contract is concluded. At the end of the fixed interest period, there is usually a residual debt that is settled by follow-up financing. How high the residual debt and the costs for the real estate loan turn out can be influenced by the right repayment rate.
Monthly repayment component
A monthly repayment component is characteristic of a repayment loan. As the repayment progresses, the interest portion decreases, which leads to a change in the rate. While the monthly installment is still high at the beginning of the repayment, it decreases over time due to the interest paid off.
In the case of a final real estate loan, the loan amount is only repaid in one amount at the end of the term. During the fixed interest period, the borrower only pays the interest in monthly installments. This means that at the end of the fixed interest period, the loan debt is still there. Credit institutions usually couple maturity loans with building loan contracts or life insurance policies to ensure repayment.
The real estate loan with constant annuity is of the greatest importance among all variants, since it also offers reliability and flexibility in terms of repayment. The following describes how the repayment of such construction finance can be optimized.