Although there has been a slight upward trend in building interest rates in the past two weeks, overall interest rates are very low. However, borrowers need to know that the mortgage rates offered and advertised do not apply to all borrowers. Because, of course, advertisements are always made with the best (cheapest) interest rate, but this does not apply to all loans by far.
In practice, it is also the case with mortgage interest rates this year that the interest rate is set on the basis of various factors. A bank almost never issues a uniform interest rate that would then apply to all customers. Instead, there are various factors that add up to the respective mortgage rate. These influencing factors include, for example, the duration of the fixed interest rate. But the creditworthiness of the borrower is also a very important factor when it comes to the interest rate to be determined. In addition, borrowers should not neglect a very crucial factor, namely equity.
If, for example, banks currently advertise with a building rate of only 1.90 percent, this very low interest rate almost always presupposes that the fixed interest rate is only five years and that the customer can bring equity between 15 and 25 percent into the financing.
Equity can lower building rates
Equity is very important for both banks and borrowers in the course of mortgage lending. Equity is positive for the bank because the loan to be financed can be lower, which ultimately leads to a lower credit risk. Because a larger part of the loan can be secured, for example, by a mortgage. As a result of this, the bank is ready to set a lower loan interest rate for real estate financing with equity capital than if it were a so-called full financing.
The borrower can therefore benefit directly from equity by paying a lower interest rate. In addition, the equity is of course also very positive because the debt component is reduced, which can lead to a lower monthly loan rate. Alternatively, the loan can of course be repaid faster if the repayment is higher.