A real estate loan is usually a purpose loan. But what exactly does it have to do with it and can the credit really not be used for anything else?
For a credit statement, a purpose must be specified. The loan is tied to this “purpose”.
When concluding a real estate loan, the money must be spent for the respective purpose. In this case, this means, for example, for the construction or purchase of a house, a property or apartment. The “purpose” is thus firmly bound to the project. With regard to the payment of the loan, the banks check where exactly the respective amount is transferred. In addition, the loan collateral here corresponds to the intended purpose. With a real estate loan this usually means that a mortgage is registered on the house / apartment. Thus, the object to be financed also serves as security here.
A purpose-bound loan is therefore only added for this one purpose. However, this is not only the case with real estate loans, but also with car finance, for example. Here, the earmarking is geared to the car, so that the respective amount may be used only for the purchase of a car.
The earmarking of the real estate loan ensures that banks and borrowers benefit from advantages.
While earmarking is generally perceived as unpleasant for many borrowers, it still has some benefits for both sides. The reason for this unpleasant feeling is usually based on the fact that the credit institutions here check exactly how the borrower uses the respective amount or whether he actually spends the loan amount for the stated purpose.
One of the advantages that banks benefit from is that in this way they know very well what the borrower uses the loan amount for. Accordingly, they can also take this into account when awarding the loan. Since here also the property itself serves as security and thus brings a certain value, the risk minimizes for the banks.
But not only the banks, but also the borrowers benefit from the earmarking. Because credit institutions take less risk, they give away a lower interest rate. This also includes the fact that a real estate loan is subject to a very long interest rate, which also ensures a favorable interest rate.
In the case of a real estate loan, the purpose limitation is usually “confirmed” by the notarial registration of the mortgage. At the same time, the bank also receives the security it desires.
Of course, it is not enough that the earmarking is determined only in the contract. Since the house or the condominium serves as collateral for a real estate loan, the bank naturally also wants to receive this security.
This means that the notary is given the registration of the land charge and thus there is also a “tangible” proof that the loan was used by the borrower for the intended purpose.
Real estate loan: generally cheaper by earmarking?
Real estate loans are usually quite cheap, but the various offers should be compared well with each other: the differences are sometimes quite high.
Although a real estate loan is usually a cheap loan due to the earmarking, it is advisable not to select the first offer here. So it is highly recommended to compare the various loan offers from the different banks. However, one should also note that just a few percentage points less can ensure that the credit is significantly cheaper. This can be about several hundred euros or even a larger amount. In this way, it is also feasible to save a lot.
Further, additional agreements
In a real estate loan, additional additional arrangements, such as the possibility of special repayments, may be agreed.
In addition to earmarking, however, there are often a few other additional factors that can be included in a mortgage loan. This includes, for example, the possibility of special repayments. Here, banks often offer the option of making a one-off or several times a year free special repayment up to a certain amount. This not only has the advantage that it reduces the loan amount faster, but it also attracts less interest. If, on the other hand, no free special repayment is included, special repayments may still be made in some cases, but you will normally have to pay a so-called prepayment penalty. This is what the banks are asking for, as they avoid interest income through special repayment. Accordingly, it is advisable in this case to calculate well in advance whether a special repayment pays despite the prepayment penalty to be paid.
It may also be possible for banks to offer residual debt insurance. Whether the conclusion of such insurance pays off, should be clarified best in individual cases. When buying or building a house, however, it is quite possible that this is a good choice. However, it must not be forgotten that not only the installments for the loan but also the contributions for the insurance must be paid. A residual debt insurance comes about in case of unemployment or death of the borrower to franc. However, it is also possible that some banks insist on taking out insurance. Here it is then only feasible to conclude this or to renounce the loan agreement. You may find a bank where such insurance does not necessarily have to be completed.
But also in terms of rates additional agreements may be present. For example, some banks offer that the first installment to repay the loan need not be paid immediately, but at a later date.
It may also be that the right to a one-time suspension of installments in an emergency exists in the contract. For example, if suddenly the washing machine strikes, you can quickly obtain a new replacement device in this way. Then next month the rate will continue to be paid as normal. So it is feasible here, even once to bridge a financial bottleneck, without the entire financing immediately falter.
The lending credit for real estate loans ensures a cheaper interest rate. Further, additional agreements round off this type of credit. A real estate loan is thus a purpose-specific loan that may be used, for example, only for the construction or purchase of a house or a condominium. Here, both the bank and the borrower benefit from advantages. Borrowers are happy because of the earmarking for a lower and thus cheaper interest rate. There may also be other additional agreements included in the loan agreement , such as the ability to suspend a monthly installment in an emergency.