What to do against rising mortgage rates?
What to do against rising mortgage rates?
Trends for an interest rate development can be given – at the end of the day, no one knows what the mortgage rate will be in the future. Therefore, it is important to consider some points in the situation when you want to extend, increase or take out a new mortgage.
There are great differences among mortgage providers in the calculation of affordability. This can affect the interest rate terms. The cost of the mortgage usually consists of the mortgage interest, amortizations and ancillary costs. However, there are differences in the imputation of income, the amount of the simulated interest rate, amortizations and incidental expenses.
Differences in the calculation of income for the affordability calculation
While some financial institutions assume gross income, others calculate net income. Some deduct the costs of additional loans and maintenance payments from gross income, while others add them to the mortgage costs. The same applies to income from securities or net income from renting out properties. This influences the affordability calculation and thus also the interest rate offered for the mortgage. The affordability norm is that the costs should not exceed 1/3 of the gross income. Here, too, there are other models. Some allow affordability up to 38% and assume net income, others have a matrix, the lower the loan-to-value ratio the higher the affordability ratio may be.
Different simulated interest rate
The mortgage providers want to be on the safe side when calculating the affordability and therefore apply an interest rate of 4.5 – 5 % in their calculation. There are also institutions that apply different calculated interest rates for customers in retirement and customers in the working process.
Different amortizations
The first mortgage is 65% of the purchase price or appraised value/current market value of the property and does not have to be amortized. Anything over 65% of the loan-to-value is considered a 2nd mortgage. Normally, the 2nd mortgage should be repaid within 15 years. There are also financial institutions that require higher amortizations depending on the location of the property. There are also conditions that the 2nd mortgage must be repaid by age 65. So those who are over 50 years old must repay in less than 15 years. The whole thing stands and falls with the market value of the property. Different valuation practices can of course affect the amortizations here.
Different ancillary costs
Usually, 1% of the market value of the property is used as a basis for calculating incidental costs. However, there are also financial institutions that calculate with the actual ancillary costs from the valuations of the properties or calculate less than 1 % for newer properties.
Mortgage Lending Standards
The loan-to-value ratio describes the relationship between the mortgage loan and the appraised value/current market value of a property. As a rule, residential buildings are mortgaged at a maximum of 80% (higher with additional coverage). Differences may exist in the assessment of whether a property is considered a luxury property or a vacation property. Some define luxury by the size of the net living space and others by the amount of the purchase price. There are also differences in the determination of the market value of the property. In some cases, there are large discrepancies between the mortgage providers. Especially when it comes to the plausibility of the current purchase prices.
That is why it is important – to obtain and compare different offers. This is worthwhile and you can really profit from it. From time to time, banks, insurance companies or pension funds run promotions on mortgage interest rates. These are always good opportunities to obtain mortgages at favorable rates.
Thanks to our excellent relationship with our financial partners and our extensive know-how in the approval process, we have a good overview and can place the financing applications in the right place. We know where the action is and get you the optimal and most attractive financing solution with the best conditions.
