Loans – how much should the repayment be?
It is obvious: if you only choose a low repayment, you automatically extend the loan term when interest rates are low – unfortunately, many building owners do not really keep this effect in mind. Borrowers, for example, if the interest rate is 6% and initially 1 percent of the loan is repaid, it will take around 30 years for the total debt to be paid. If the interest rate is below 4%, the borrower will need around 40 years if the repayment is just as high.
As a result, a high repayment rate should be agreed when the mortgage rate is low.
It therefore affects the amount of the interest rate and the respective repayment period – the background, of course, is the constant high rate of the annuity loan, which is composed of repayment and interest. Caution: a loan that was borrowed at an interest rate and paid off with a 1% annual repayment will still definitely be cheaper than an expensive loan, but for borrowers who are looking to get the most out of the interest rate environment, repayment should be at a minimum 2%, the fixed interest period should ideally be 15 or even 20 years: this helps to save twice, avoids possibly expensive follow-up financing and makes debt relief faster.
A seemingly no longer noticeable difference in the conditions can ultimately make a significant difference in terms of the total costs – ultimately the mortgage interest rate conditions are correspondingly different. If the interest rate is low, the borrower should agree on a long-term fixed interest rate with his bank, otherwise he may pay extra if the follow-up financing is expensive.
Repayment, interest rate and term in relation
Example to illustrate the fact: the interest rate is 4%, the borrower needs about 40 years with an initial repayment of 1% – at 6 percent interest, the borrower would only need 30 years to be free of debt. If you increase the one percent repayment to 2%, the borrowing rate is reduced by a whole twelve years at a borrowing rate of 4% – if you repay 3% annually, you can be debt free after 21 years. The fees for follow-up financing should not be underestimated: if the mortgage interest rate increases by around 2%, the monthly rate will increase by 30 to 40%.