After 15 – 25 years, even with well-maintained new buildings, there is the first investment backlog on the roof, seals and outer walls and rarely then expected repair or modernization costs are already planned when the construction finance is completed. Even loans with a high annual repayment rate of 6 to 7% have not yet been repaid in full and the property can only be mortgaged again on poor credit terms.
Alternative to the encumbrance of the property
A modernization loan from a bank or Good Credit solves this dilemma in a simple manner since a modernization loan is usually granted without a new entry in the land register, which means that there are no additional costs associated with this, in addition to possible deterioration in conditions – and at the same time it is particularly low-interest. A modernization loan for interim financing is ideal, especially in the case of long-term construction financing or a long-term real estate loan with low repayments and thus a remaining outstanding debt.
The modernization loans of the banks are characterized by an average loan amount of approx. 5,000 to 50,000 dollars – more is usually not possible due to the (naturally due to creditworthiness) waiver of collateral or entry in the land register – but this is true for the majority of all repairs, refurbishments, and modernizations is quite sufficient.
The average term of a modernization loan is 10 years, with an interest rate that is more like an annuity loan, even if the modernization loan is more like an installment loan. Currently, for example, the interest rate is between 2.4 and 2.5% with an 8-year term, which coincides with the interest rate of the real estate financing currently available on the market.
But: The fixed interest rate also has an impact on a modernization loan of approx. 0.2% to 0.3%, which should, however, be used in low-interest periods for long-term loans (5+ years), as the key interest rate is in the event of an economic recovery will pick up again strongly – and with it the interest for a modernization loan!
Special repayment, regardless of all other modalities, should always be taken into account, so that in the event of an emergency, a faster repayment is possible without the payment of a prepayment penalty.
Always free of registration in the land register?
Whether collateral is required, has to be provided or a land register entry is not necessary, of course, depends on the customer’s creditworthiness. In principle, the better the financial situation, the lower the burden on the property and the more permanent the employment relationship (civil servant, public service, salaried employee, etc.), the greater the confidence of the banks.
The self-employed are usually exempt from being entered into the land register, even if they have an excellent credit rating – here the banks’ security thinking of granting a long-term loan without collateral to people without fixed income is an obstacle.
Favorable interest: Pay attention to regional offers!
Many regionally linked and active banks issue modernization loans at mostly lower interest rates than large banks – however, there are usually loan requirements such as placing the order with regional craftsmen and companies. Depending on the region, this can be worthwhile, or it can make the loan indirectly more expensive, depending on the high or low price level of the local craft businesses.
Building society contract: a better alternative?
A modernization loan is of course not the last word – alternatively, a building society contract can be used for modernizations and refurbishments, as was common in the past. This can be cheaper because you set a fixed target amount from the start and can secure a low-interest loan. The disadvantage of a home loan was and is that
- this needs some lead time and
- the interest on the saved credit is very low.
The advantage of a home savings contract is that the possible loan can often also come with a very low-interest rate.
Nevertheless, a home savings contract is only worth it to a very limited extent and basically only in high-interest years. With a low key interest rate, the interest rate level of a home loan hardly differs from that of a conventional home loan. Those who are interested in it can expect the following intervals and costs in the long term:
Cheap loans and government funding!
Depending on what needs to be modernized or refurbished, a cheap loan from the federal or state governments can be worthwhile, which even regional banks can undercut again and come up with an effective interest rate of less than 2%.
But: The state usually only grants these very cheap loans under certain, strict conditions! For example, certain program priorities (e.g. energy-related renovation) must be demonstrably implemented in the planning and execution of the measure, and these modernization loans must be used for a specific purpose.
In addition, the government grants, grants, and loans are pool-related, which means that they are only available up to a certain amount – if the pool/pot is already empty because others have submitted and approved an application before you, there is nothing left