Negative building rates: will there soon be interest-free building loans?

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What are negative building rates?

What are negative building rates?

The term “negative building interest” means that you have to pay less with real estate financing than you borrowed. So you do not pay interest to the bank – as is usually the case with a home loan. On the contrary: the bank pays the mortgage interest to you, as a compensation, so to speak, that it can “park” the money with you. Because if she invested the money with the Cream Bank, for example, the penalty interest would be even higher. That means: If you take out a building loan of $ 200,000 and secure minus interest of -0.2% for 10 years, you only have to repay $ 196,000 to the bank at the end of the term.

How likely are negative interest rates on mortgage lending?

How likely are negative interest rates on mortgage lending?

It is becoming more and more likely. Good Finance advertises a negative annual interest rate on its website. This comes about when a promotional loan is taken out, which is paid out if the Good Finance Efficiency House Standard 85 is to be achieved when a building is renovated. In addition to the loan, a repayment subsidy of up to $ 36,000 can be applied for as part of the Good Finance funding. According to the Good Finance, a borrowing rate of – 0.75% results for a certain loan amount and simultaneous inclusion of the repayment subsidy.

According to media reports, there are other banks that are preparing for negative interest rates on home loans. The industry service “Finanz-Szene” quotes anonymously a representative of a large Best Lender with the words: “If the competitive situation requires it, we will act and work with negative effective annual interest rates.” In plain language, this means that negative interest rates are very possible. The Cream Bank, which oversees Best Lenders, believes that minus interest on building money is possible and would not take action against it.

On the other hand, a spokesman for Cream Bank said that there are currently no plans to introduce negative interest on mortgage lending. In addition, there are preliminary technical problems at some banks: the software used there for the loan calculation is not programmed to count with a minus. New solutions must first be found here.

Good to know! There is no clear picture of how likely negative building interest rates are in the coming months. Noriel Mant, CEO of the credit intermediary Dr. Klein summarizes: “In the short term, I think it is unlikely that banks in Germany will offer real estate loans with negative interest rates – even if banks have to keep this back door open for strategic reasons alone.”

How important are negative building rates for building owners?

Building finance without interest or even with negative interest has both advantages and disadvantages for you as a borrower.

Advantages of negative interest rates on real estate loans

If you want to buy or build a property, negative interest means that you can save a few thousand euros on the financing. This saving is noticeable on the one hand at lower monthly rates. On the other hand, the total cost of the loan is reduced.

Even if the interest rate commitment is about to expire in the case of an existing building loan and you take care of the follow-up financing, you can benefit from negative interest. It is best to start finding out about the current interest rates 6 to 12 months before the end of the fixed rate period. A forward loan may even be an option, with which you can secure low interest rates for follow-up financing up to 5 years in advance.

Disadvantages of negative building rates

Houses and condos are becoming increasingly expensive. Experience in recent years has shown that property prices are increasing rapidly, especially in the metropolitan areas. The more money in circulation through cheap loans, the higher the prices for your own four walls. This is due to the growing demand, which is also increasing because many investors buy real estate as an investment.

Already knew? Negative interest rates on mortgage lending do not have to be negative business for the banks. Since they can currently get themselves extremely cheap money in the business between banks, negative interest rates on real estate loans do not necessarily mean a loss for the lender.

Why can there be negative building rates right now?

Why can there be negative building rates right now?

The interest rate development on building rates has continued to fall in recent months. This is largely due to the monetary policy of the Cream Bank (Cream Bank). It tries to boost the European economy with low interest rates. To this end, it has kept the European key interest rate at a low level for years. As a result, the yield on 10-year Bunds continues to fall, falling in August 2019 for the first time below – 0.7%.

Building rates usually follow the interest rate development of these federal bonds at short intervals. That’s why they slipped further down in July and August 2019, making real estate loans cheaper and cheaper.

As the economic situation in Europe remains difficult, it is expected that the Cream Bank will keep the key interest rate low for a long time or even lower it further. This could lead to even cheaper loans and even negative interest on a building loan.

Are there negative interest rates for mortgage lending abroad?

Yes. In Switzerland and Denmark there are already negative interest rates on real estate loans.

The Lite Bank is a pioneer in real estate loans with a 10-year term. Their customers receive the loans at an interest rate of – 0.5%. Recently, the Agree Bank also caused a stir: it plans to offer real estate loans with a 20-year term without interest charges. However, Noriel Mant points out that in some cases only the borrowing rate is negative and fees charged there should be added: “Including all fees, the effective interest rate may be in the plus.”

In Switzerland, house loans with negative interest rates are also granted under certain conditions, but so far only for institutional customers and for short-term loans with high sums.

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