What is a mortgage loan?
A full repayment loan is a real estate loan that is granted to you over a fixed term. No residual debt remains at the end of the term. So, with this type of loan, you pay off your loan debt entirely. Your credit rate is the same every month – ideal for the reliable planning of your expenses. For comparison: With the annuity loan, a residual debt remains at the end of the agreed term, which you have to pay back to the bank with follow-up financing at new conditions.
Whole mortgage loan or annuity loan – which loan form suits me better?
In order to be able to differentiate the two types of loan even better, we will explain the essential features of the full-term loan and annuity loan in more detail.
- The full repayment loan is designed to repay the entire loan to the bank within the agreed term. To ensure this, a time between 15 and 25 years is often set. The basis for calculating the monthly installment for a full repayment loan is the agreed loan term. Because the term determines how high you have to repay, so that there is no remaining debt at the end of the term. The shorter the term, the higher the repayment must be. The repayment of a full repayment loan is therefore generally higher than that of an annuity loan.
- Despite the high monthly burden, a full-time loan also offers savings. Because of the fast repayment, many banks offer full repayment loans at particularly low interest rates. The default risk, i.e. the risk that you cannot repay your loan to the bank, is lower with a repayment loan than with an annuity loan. This is because only customers with a very good credit rating, ie perfect solvency, can take out a full repayment loan. In addition, Volltilger do not need follow-up financing after the debit interest rate has expired and therefore do not opt for another bank. This collateral is worth something to the banks, so they offer interest rebates of up to 0.3% on repayment loans.
- Fixed interest rates over the entire term of the loan are detrimental to flexibility. If interest rates fall during this period, you cannot adjust your conditions to the current situation and have to accept the higher interest rates specified in your contract.
- Should your financial situation change so that you can no longer pay the installments, the banks generally do not grant any repayment breaks. Special repayments and repayment changes are usually not possible. Because your constant monthly loan installment was calculated on the basis of the loan term, you must not subsequently change the previously defined loan period. But the same applies here: Talk to your bank about the terms of the contract.
- The annuity loan is one of the classic forms of credit. In your loan agreement, you agree on an interest rate fixation with your bank and a specific term in which you repay the loan. In contrast to the Volltilger loan, the conditions apply for the first 5 to 20 years of mortgage lending, with a residual debt remaining at the end of this period. They settle the remaining debt with the help of follow-up financing, so that you have to negotiate new terms with the bank after the initial financing has expired. In the beginning, the repayment is usually relatively low, so that at the end of the term there is often a high remaining debt.
- In contrast, you have a much greater flexibility with the annuity loan compared to the full repayment loan. Because, if you wish, you can arrange repayment suspension (e.g. in the event of payment difficulties), change in the repayment rate (e.g. in the case of salary increases) or special repayments. The latter is particularly useful if you inherit, win the lottery or have life insurance paid out. Because then you have additional money at your disposal that you can use for your real estate financing. Since you make unscheduled repayments through these special payments, you shorten the total term of your loan.
High planning security for both types of loan
Due to the constant monthly installments, both types of loan enable a high degree of planning security – for annuity loans within the fixed interest rate, for full repayment loans even over the entire term. This way you avoid the risk of changes in interest rates. Your interest rate cannot change within the specified term.
You can terminate both annuity loans and full repayment loans 10 years after the full amount of the loan has been received with a notice period of 6 months. According to § 489 BGB, this is possible without paying a prepayment penalty. The prerequisite is that the loan contract has not been changed within these 10 years.
Overview of the advantages and disadvantages of a full-time loan
In the following we would like to give you an overview of the advantages and disadvantages of a full-time loan.
- Planning security thanks to constant monthly charges (rate remains the same over the entire term)
- No interest rate risk (interest rates remain the same over the entire term)
- Favorable interest rates (bank often rewards the high repayment by lower loan interest)
- No follow-up financing necessary
- High monthly rate for a long period (repayment portion must be very high so that no residual debt remains)
- Strong and long-term loyalty to a lender (exception: after 10 years according to § 489 BGB)
- Lack of flexibility: the term cannot be shortened or extended
- As a rule, no repayment suspension possible (inflexible in the event of payment difficulties)
- As a rule, no repayment changes or special repayments are possible (inflexible with salary increases, inheritances, etc.)
Sample calculation: This is how expensive full-term loans and annuity loans are
A full mortgage loan is generally cheaper than an annuity loan because you save money because you are free of debt earlier and therefore have to pay less interest. But your additional monthly costs are considerable. A calculation example should illustrate this. We assume that you would like to take out a loan of $ 200,000 with a fixed interest rate of 20 years for your construction financing. With a full mortgage loan, the bank gives you a 0.2% interest discount compared to an annuity loan. This results in the following costs for you:
|Volltilger loan||Annuity loan|
|Loan amount||$ 200,000||$ 200,000|
|Fixed interest rate||20 years||20 years|
|Borrowing rate||2.3% pa||2.5% pa|
|Monthly rate||$ 1,041.67||$ 750|
|Remaining debt after 20 years||0 $||$ 96,341.75|
What additional burden arises with a full repayment loan?
Our calculation example shows that the additional burdens that arise from a full repayment loan compared to an annuity loan are considerable:
- Additional charge per month: $ 291.67
- Additional charge per year: $ 3,500.04
- Additional charge over 20 years fixed interest rate: $ 70,000.80 (compared to $ 96,341.75 remaining debt that you still have to repay)
In the example you are at $ 291.67 per month or $ 3,500 per year. That is a lot of money that you have to have regularly available over the entire term of 20 years. Therefore, carefully consider whether you want to and can expose yourself to this additional financial burden over a longer period of time.
For whom a Volltilger loan is recommended
Anyone who has a high, secure income and a considerable amount of money each month is surely well advised with a full-time loan. Because if you can reliably pay the high installments over a long period of time, you save interest and are debt-free faster than with a classic annuity loan. With a long-term secure, well-paid job, an impeccable credit rating and constant living conditions, a full-time loan is worthwhile for you. However, this does not apply to most people, since there are only limited financial resources available every month. In addition, life circumstances can change unexpectedly, which may also affect your solvency.
For mortgage lenders with a life or family plan that has not yet been completed or a rather uncertain professional future, a more flexible form of loan is therefore definitely the better long-term choice. Because if z. B. Youngsters are coming, you lose your job or want to go on a longer trip spontaneously, a full-time loan will quickly put an end to your bill. When deciding for or against repayment, you should not only consider the amount of the monthly installments, but also the long period for which you agree to pay these high installments.
When full repayment makes sense
Volltilger loans are particularly attractive in low interest rates. Because when interest rates are low, long interest rates are worthwhile. In this way you can secure the low interest rates for the entire term and therefore avoid the risk of interest rate changes, i.e. the risk that interest rates will rise and you will therefore have higher interest costs. Because, as already mentioned, the interest is constant until the loan is fully repaid and cannot be raised by the bank.
Good to know : Interest rates are currently low, so you should secure them for as long as possible – regardless of whether you are on a repayment loan or an annuity loan.
If the interest rate is just high at the time the loan is taken out, a full repayment loan is not recommended. Because the money you save through faster repayment is immediately drawn out of your pocket again by the comparatively high interest costs. Due to the fixed rate fixation throughout the entire term, there is unfortunately no way of benefiting from low interest rates should they fall again during this time.
A full mortgage loan saves money because you are debt-free faster and therefore have lower interest costs. In terms of the term, however, it is associated with much higher costs, which are on your shoulders month after month and year after year.
Is a repayment loan also possible as follow-up financing?
Of course, you can only decide on a full repayment loan as part of your follow-up financing, i.e. after the debit interest rate commitment of an annuity loan has expired. This is particularly attractive at the moment: since today’s interest rate level is significantly lower than five or ten years ago, you can often achieve a noticeably higher repayment with your previous rate. As a result, your remaining debt can be paid off much faster thanks to the lower interest rates – with the same monthly charge as before.