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Annuity Loans, Repayment Loans and Mortgage Loans (Real Estate Loans)

What types of real estate loans are there?

What types of real estate loans are there?

Mortgage lending generally consists for the most part of a real estate loan, which is provided by almost every bank. In addition, the mortgage loan, which is also referred to as a mortgage loan, is often supplemented by a home savings loan and / or a loan from Astro Finance. Even though the banks mostly talk about the (one) real estate loan, there are still different variants between which the customer can decide.

Here we briefly explain the different forms of financing and show advantages and disadvantages.

redeemable loan

redeemable loan

The first variant of the real estate loan is the so-called repayment loan, which has hardly been used in practice in recent years. Characteristic of the repayment loan is that not only the monthly loan installment is always the same every month, but that in contrast to the much more frequently used annuity loan as a standard real estate loan, the amortization portion is always the same. So if you take out a repayment loan over a term of 20 years, you will pay off the loan debt every year by five percent.
It is also called a down payment loan.

annuity

annuity

The Annuity Loan: Consistent rates with shifting portions of principal and interest

If the banks offer a real estate loan or namely a mortgage loan, then this is in the vast majority of cases an annuity loan. The name of this real estate loan is derived from the annuity, which basically means the annual loan installment. In terms of content, the essential feature of the annuity loan is that the loan installment is the same every month as in the repayment loan.

Annuity Loan: Interest

The main difference to the repayment loan, however, is that the proportion of interest and repayment is shifting over time. Because there is a – usually quarterly – repayment settlement, the interest from the sum over the years are getting smaller, so that the proportion of repayment increases. For example, if the annuity loan includes an initial principal repayment of two percent immediately after the loan has been taken, the repayment installment could already be five percent after ten years.

Final loan (or fixed loan)

Final loan (or fixed loan)

Final loan / fixed loan: Amounts of money originally intended for repayment can be meaningfully saved and invested.

Not as widespread and well known as the annuity loan, but still very useful in the course of some mortgage lending, may be another variant of the real estate loan, namely the so-called bullet loans. The term loan differs from the two above-mentioned variants repayment loan and annuity loan essentially by the fact that the entire loan purchase period is not repaid. Consequently, the monthly installment consists only of the interest, because the borrower takes the eradication only at the end of the term, and then in a sum.

Final loan: interest

The disadvantage of the structure of the fixed loan is that there is no repayment settlement, so that the borrower must pay during the entire time interest, which relate to the entire loan amount. This disadvantage, however, is in total an advantage in that the customer can profitably save the amounts actually intended for the repayment, usually in the course of a capital life insurance. Since the income is often greater than the disadvantage of non-repayment, the conclusion of a bullet loan from an economic point of view is quite often worthwhile.

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