How does the interest rate cap affect borrowers?

Alternatives to the annuity loan
Installment repayment, Euribor, Cap loans and Co.

31.07.2018 – 10:00

Baufi24 Baufinanzierung AG

Hamburg (ots)

Many interested parties associate the so-called annuity loan with a loan. This variant is also the most commonly used when it comes to mortgage lending. "The special thing about the annuity loan is that the monthly installment consists of two parts: repayment and interest. The repayment portion increases every year and the interest portion decreases", explains Stephan Scharfenorth, managing director of the construction finance portal (https: // www. But there are many other alternatives to the most common construction financing variant, such as the installment loan, the Euribor loan or the cap loan.

Installment loan

The installment loan is suitable for builders who post above-average income. Because in contrast to the annuity loan, it does not consist of a consistently high rate, but of fixed conditions and thus an unchanged interest and repayment rate. Thus, the remaining debt decreases every month and borrowers reduce the interest to be paid. This means that they have to pay less and less each month. The disadvantage of this variant: The repayment rate is set significantly higher than with a conventional annuity loan.

Euribor loan

A variable loan is the Euribor loan, which is linked to the interest rate of the European Central Bank. However, the same conditions do not apply. The interest rate is usually a bit higher, but the interest rate trend adjusts to the euro interest rate approximately every three months. Since it can be a very risky and expensive loan, lenders usually offer a switch to the fixed-rate loan. This combination is called a flex loan. In the event of rising interest rates, builders have the option to switch to the fixed interest rate. Another special feature for borrowers: At each end of the interest segment, builders make special repayments without a prepayment penalty being due. Anyone who has large sums of money in the foreseeable future can take advantage of this. Heirs, for example, benefit from the prospect of repaying the loan in full within a year without having to pay early repayment penalties or interest surcharges. Borrowers who are eligible for the Euribor loan should have market knowledge as the interest rate market is constantly changing. If borrowers miss the right time to switch, it could get costly.

Cap loan

The cap loan is similar to the variable Euribor loan. The main difference lies in the interest rate limit. In the loan agreement, an upper limit for the loan interest is set, which takes effect when the interest rates of the European Central Bank rise above the previously defined upper limit. The term of the loan can be up to 15 years. It is therefore a less risky variant of the Euribor loan. In contrast, borrowers pay a so-called cap premium, i.e. a small premium over a variable loan. Lenders recommend this loan variant for builders who do not want to keep an eye on their financing permanently and still want to benefit from the best possible interest rates. The cap loan can also be taken out in combination with a flex loan. In summary, the installment loan is particularly suitable for high-income borrowers or home builders with a relatively low financing requirement. The Euribor and Cap loans are variable and allow high special repayments. To be able to benefit optimally from these variants, borrowers should pay close attention to the interest rate market. Interested parties can use the building finance calculator ( to determine how the monthly installments of interest, repayment and special repayment are made up for different financing amounts and loan-to-value rates.

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