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How much equity is really required for the construction financing
As for the use of equity in the financing of construction, it is clear that has changed in recent years a great deal. Because of increasing competition, many banks have relaxed their criteria for lending: even with little capital, it is now possible to obtain a mortgage. The best example is the full funding: borrowers today have the ability to finance the entire purchase price of a property.

However, such loans come at a price: Because the banks are at full financing a higher risk, the borrower shell out higher interest rates. If you want to take a reasonably-priced loans, is still the old rule that says that at least 20 percent equity must exist. At first, this sounds not at all after so much money, but it is on ordinary savings have to come to such a high proportion of own resources. Often that is not referred to the fact that the expenses incurred for property purchases are also to pay out of pocket.

Suppose a small house in a rural location will be offered at a price of 200,000 €. Basically, this is not a high price, but interested parties should have a whopping savings to get the loan at a fairly reasonable interest rate.
The required 20 percent of the equity commitment in the financing amount to at least 40,000 euros. Depending on the location of at least 5 percent of costs falling (real estate taxes, notary, land registry etc.), so that added another 10,000 euros. If we consider even a small financial buffer for emergencies and some money to set up (a few people want to purchase their new home with old furniture) and for renovation, will once again draw 5000-10000 €. In sum, these are at least 60,000 euros, which must appear in savings available for the project to home ownership can be tackled.

In the current very low mortgage rates, it is useful to close loans with a fixed interest rate as long as possible. The classical rate fixation period of 10 years applies only in a few cases, as recommended. Most borrowers will need more time to repay their loans in full. Because the probability that in 10 years are higher interest rates, measured relatively high, it simply makes sense to choose a longer fixed interest rate. Especially since the design is relatively simple: More and more banks are starting to offer fixed interest rates of 20 or even 25 years.

Prospective borrowers are careful though. Often they dare not approach these fixed interest rates. In essence, two arguments are listed. First, reference is made to the interest rate advantage that comes a brief fixation with it. The truth is: shorter fixed interest rates actually lead to lower interest rate. However, the risk of short interest commitments may not be disregarded. If you already have a second mortgage is due in 10 years and then interest rates have risen to only around one percent, the total funding significantly more expensive. They also argued that interest rates rise much more clearly, so that some borrowers may no longer are able to lift their funding.

The second reason, the possibility is mentioned that the mortgage rates in 10 or 25 years could be less expensive. This possibility is certainly, is thought to be unlikely. It also means a long fixed-interest not to use this opportunity can not. Each borrower has the option to get off a loan after 10 years of operation – that is guaranteed by a statutory right to cancel.

Consequently, it should in most cases simply make more sense to opt for a long fixation. The high level of security by the long-term interest rate advantage speaks for itself – especially since the law provides for early termination for sufficient flexibility.

Threatens U.S. banks, a new heart attack?

An independent committee of the U.S. Congress warns of new losses of billions of the banks. This is due to sloppiness in the accounting department: There are many ambiguities in the mortgage.

Vagueness: many houses – one here, which is in Texas for sale – can prove the banks may not be that the mortgage they own.
U.S. mortgage financier Freddie Mac needs new state aid
Again billion loss at Freddie Mac
The American real estate have in the past two years on average lost nearly half its value. That is a serious blow to the banks and in the fall of 2008 nearly led to the collapse of the entire financial system. So it can get worse? It can be. Now it turns out that the banks may not even know who owns the homes they have financed with cheap money. The “Congressional Oversight Panel”, an independent committee of the U.S. Congress warned, so before a second “banking heart attack” and calls for a new stress test for financial institutions.

How did it come to this mess? Before the housing bubble has burst, it went to the U.S. housing market as in the wooden sky. Representatives of savings banks turned windy houses to people who could never pay it. Investment banks fueled with highly complex financial instruments, investment vehicles, the returns promised to never corresponded to reality. “All of these subprime lenders grew so quickly and made their accounts in such a lousy, that they could conceal that they reached no real profits, but merely illusory accounting profits,” Michael Lewis describes the situation in his bestseller “The Big Shorts.”

Who is the owner of the mortgage?

After the near collapse in the autumn of 2008, the U.S. financial system of government and the central bank with a lot of money was saved. Around 700 billion dollars under the Tarp program provided the first aid. At the same time in the American Parliament, the Congress established a commission with the task to investigate the reasons for this debacle.

This Commission has now submitted an explosive report. It is warned that because of sloppy bookkeeping, a second heart attack threatens the U.S. banking system. In the worst case, it is said in the report of the Commission, it may be that the securitization of mortgages in recent years took place so rapidly that it sprinkle the capabilities of the courts and the financial system. In plain language: “The banks might not be able to prove that they actually are the owners of the mortgages, they sign on the right.”

“To those did not care what they have turned on the people”

The chaos in the books of U.S. banks would be a reason for gloating – it would not be as dramatic consequences. If in fact can not be proven who owns the houses, which are now foreclosed million times, then years of court cases and lawsuits threaten billions of dollars. The result would be a bloodbath for the U.S. banks. “To put this in perspective,” the Commission warns, “is that the market for securitized mortgages about 7600 billion dollars. And that even if only a small part of which has not been handled regularly, have dramatic effects could have on the balance sheets of banks. ”

Conclusion: The report of the Congressional Oversight Panel has clarified once more, bringing the bankers and subprime specialist Steve Eisman in Lewis’ “The Big Short” to the point as follows: “These guys lie down under the sun. What I have learned from hard experience: Wall Street … it was beautiful-no matter what they have turned on the people. “

Presently, mortgage rates, which are provided in construction financing, below the historic low that was reached in autumn 2005. For significantly less than 3%, is five-year loans may be used.

Max Herbst, chief of the DMH Financial, told the media that the interest rate with the five-year mortgages already 0.3 percentage points lower than during the historic lows. Some banks offer construction financing with a maturity of five years starting at a rate of 2.50 percent. Even for loans with a 10-year interest rates are so cheap, like it was a long time.

In such operations, the low point was already reached. Interest rates start at individual banks at 3.50 percent. average must be calculated at the ten-year mortgage at an interest rate of 3.72 percent. This is already less than the previous historic low. Only when financing with a fixed interest period of 15 years of historic low point was not reached. So far, borrowers have to pay for these offers still 0.10 percentage points more. The cheapest provider to offer loans with fixed interest for 15 years from 3.85 percent.

accept a low interest gift or not?

Bielefeld. House builders know that construction financing is always a bit like playing roulette. Should we conclude the mortgage now, but would rather bet on falling interest rates, or in two or three months, called again a few tenths of a percentage point more? But suddenly everything is different: building loans are so cheap as never before, interest rates can hardly fall further. Internet banks offer loans with a five-year now to 2.5 percent or less – that sounds like summer sales.
Click here to find out more!
Building interest: At the moment good prospects for house builders,

While home builders and mortgage debt consolidators are cheering,John Doe asks: Is this still normal? No it is not. The mortgage cut-prices are a result of economic and financial crisis that has still not been overcome, especially in the USA. Unlike in Germany, a stable growth where emerges, there is a slowed down economic recovery there. The Fed is pumping billions of desperately billions into the market, but the recovery remains unseen.

Fed puts shackles on ECB

Experts expect an increase in interest rates in the U.S. earlier than the coming year. Monetary policy in the U.S. interest rates near zero also sets the European Central Bank (ECB) to bonds. Just one percent interest rates they charged for loans to banks that the money may correspondingly cheap pass on to their customers. Too little to prevent the risk of inflation in the euro area, experts say. But a unilateral rate increase would leave the euro price rise and thus stifle the export. So it stays in Europe for cheap money looking for investment opportunities.

Flashy returns can be earned with no mortgage. But for the business for the banks in this country is virtually no risk. For, unlike in the U.S., where the infamous sub-prime loans were squandered on questionable terms not sufficiently wealthy private clients, is the German property owners, something like the Mercedes of the redemption. Risky 100-percent-financing the exception, houses and flats are considered as their value.

The risk of low interest rates.

But that’s the risk of low interest rates. Mortgage pay off suddenly and for the low income groups to whom the own four walls could only be a dream, it gets affordable. Banks and consumers would do well to avoid putting the calculator out of the hand to hastily. It can mean to struggle with the mortgages even then; Even it is at a later stage.

Marginal note: The Hypo and the hype around the Hippo

08.16.2010 | 18:45 | THOMAS Kramar (The Press)

From a Greek preposition to a tired artiodactyls: For word history of the Hypo-banks (mortgage banks).
The car, Homo, the hetero, the Eso, the pseudo, which joins Tele: Hypo in the list of ancient Greek origin prefixes substantivized, right after the hype. From whom, taken literally, should be the sheer opposite: For “hyper” means “about” – hence the hyperbole, exaggeration – “hypo” means “under”, then the mortgage, which already known in ancient Greece , was on German translated as “pledge”. Other common words with “hypo” means hypothesis (assumption) and hypochondriac: his mental illness sit under the cartilage (“Chondros”) of the ribs, thought the old man.

For English ears, is the short form “hypo” for hypo or more for an injection (hypodermic “= means under the skin), the mortgage in German ” Hypothek “, which comes from French (” dead pledge “) and such the Rolling Stones song “Sittin ‘on a Fence” in front, where Mick Jagger sings about his brave peers disdainfully: “They mortgaged up their lives.”

How can we then translate that? No matter. Institutions with which it can be done, were founded at least in German speaking countries since the mid-19th century – as a logical interface between feudalism and capitalism, in other words, as responses to the Monopoly game from the well-known problem: I have a lot of land and houses and they really do not want to lose, but I want money, and fast.

Already in 1835 King Ludwig I. founded the Bavarian Mortgage and Exchange Bank (one of the predecessors of UniCredit Bank AG), and their Austrian counterparts followed gradually, in Lower Austria (1888), Austria (1890), Carinthia (1896), Vorarlberg (1897), Tirol (1898), Salzburg (1909). The last Burgenland (1928) were, Styria (1929) and Vienna (1931).

Only the similar sound owes the introduction of the hippopotamus as the mascot of the mortgage banks in the seventies: the clumsy cute animals are as colorful plastic figures and stones of various games to the collective memory plays a generation. (Or mistaken our memories? The homepage of the Hypo Tirol states that the mortgage banks were introduced in the late eighties, the Hippo-line advertising, but Hypo Tirol have opted instead for a blue square. Witnesses to the word!)

The “hippo” in Hippopotamus actually stands for “horse”, so this would also be offered as an emblem of the institution. Probably you have chosen the more sleepy hippopotamus, because it seems comfortable (though it can be quite aggressive in kind). Probably not, because it usually the water up to his neck, and often it is.

We read today in the network: “As a welcome gift from the mascots get small savers of the Hypo Alpe Adria Bank AG, Hippo ‘, a Golden Hippo-benchmark in order to note how much of a small savers!”

Herewith recorded.