Buying property has become particularly cheap and attractive this year, as the current interest on mortgage lending is lower than ever. However, one should not only consider the level of interest or the price of the property, but also pay attention to the correct fixed interest period.
What is the fixed interest period?
The fixed interest period means a certain period for which the amount of the interest rate is fixed in the contract and may not be changed during this period. Even the movements in interest rates on the international financial market must not influence the agreed credit agreement during the fixed interest period.
The fixed interest period can be agreed for the entire loan term or for a shorter period.
The function of the fixed interest period must therefore be given a certain amount of certainty to the borrower so that he can repay a fixed and unchanged loan rate every month. With a fixed interest period, the risk of changing interest rates is eliminated and the credit consumer can easily plan his monthly income and expenses.
If the fixed interest period ends, the remaining debt usually remains, which must then be repaid with the final financing.
How long must the fixed interest period last?
When it comes to real estate financing, the borrowing rates are usually over five, ten or fifteen years. Most of the time fixed interest rates are agreed for 10 years.
- In order to select a correct fixed interest period, the credit experts advise you to proceed as follows: If interest rates are high when the loan agreement is concluded, but the general financial situation indicates that the interest rate level will decrease, it is better to take a short fixed period of 3 or 5 years. If interest rates fall after a few years, you can also benefit from it.
- If building interest rates are low when the loan agreement is concluded, but will increase in the future, then you choose the longest possible fixed interest period. Then your interest rate remains low as general construction rates rise.
Fixed interest period and right of termination
Should the construction interest fall again during your agreed fixed interest period, you basically have no right to terminate the loan to repay the current loan and to switch to a new loan with cheaper interest. In the event that the borrower insists on repayment before the interest rate expires, the prepayment penalty is due to the bank.
If the term of the mortgage lending is more than 10 years, you are then entitled under paragraph 489 BGB to cancel your loan within 6 months.
Conclusion: According to calculations by experts, the interest rate for mortgage lending will only increase in the future. Therefore, it makes sense to agree on a fixed interest period as long as possible and thus to ensure a low level of interest.