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Loan-to-value ratio: The maximum amount of mortgage
If you’re finally moving into your own property in order to fulfill the dream of home ownership before you retire, then you’ll probably need to take out a mortgage loan. After all, very few people have enough capital to meet the construction costs or purchase price on their own. However, when borrowing capital from banks and insurance companies, there are certain conditions which must be fulfilled. The loan is restricted and thus the mortgage cannot usually exceed a certain proportion of the value of your dream property. At first glance it is often difficult to determine the level of financing required, what kind of mortgage model is involved, and whether this is suitable for your needs. MoneyPark can provide you with comprehensive advice and find you an optimal mortgage with the best conditions.
A maximum of 80 per cent for the loan-to-value ratio: Each mortgage requires own funds
In order to be eligible for mortgage finance for the purchase of a property, two requirements must be fulfilled: you must contribute at least 20 per cent of the value as equity, and must also satisfy the bank that you can meet the cost of repayments including mortgage interest. As a result of self-regulation measures by the banks in 2012, existing rules have been tightened to prevent mortgage borrowers over-committing themselves. Essentially, their own funds must be sufficient to be able to repay the mortgage debt. Furthermore, since 2014, calculations are based on either the collateral value of the property or the purchase price, whichever is the lower. For the mortgagee, this means more capital must be found if, for example, the bank evaluates the property at a significantly lower figure than the purchase price.
The ratio of borrowed capital to the collateral value of the property is referred to as the loan-to-value ratio, and is limited to a maximum of 80 per cent. And because your mortgage loan will only cover a maximum of 80 per cent of the property’s assessed collateral value, you must finance the remainder of the cost from your own resources. At least 10 per cent of that amount, i.e. half of your own capital input, must be in the form of "real" assets. This includes cash, inheritance advances or other capital which can be converted into cash at short notice, as well as cash balances from pillar 3a. The other half can come from pillar 2, i.e. from your pension fund.
Affordability: The second prerequisite to securing a mortgage
In addition to the lending criteria, affordability also plays a key role in every mortgage. Affordability means the burden of mortgage loan repayments and mortgage interest, as well as the cost of property maintenance, which you will have to meet from your gross income. Affordability is also subject to a limit – you can spend a maximum of 33 per cent of your annual income on these mortgage and property expenses. The basis for the calculation is not the current interest rate, but an "imputed" rate of 5 percent. This is above the usual market interest rate, and is used to ensure financing will remain viable even if interest rates rise.
Amortization is the term used for the actual repayment of the mortgage loan, and a distinction is made between direct amortization and indirect amortization. While direct amortization involves a repayment which directly reduces the mortgage debt, indirect amortization involves setting up pledged assets to repay the mortgage via pillar 3a. The amortization regulations have also been tightened, especially as regards the second mortgage, which is granted for financing between 65 and 80 per cent of the total mortgage lending. This mortgage must be amortized (repaid) within 15 years, or by age 65 at the latest.
Find the best loan-to-value ratio and the cheapest mortgage – with MoneyPark
You have found your dream property? Then it is also time to secure your financing. Arrange a consultation appointment with MoneyPark: We can help you determine which loan-to-value ratio will be the most practical and what your mortgage amount should be, in order to guarantee affordability in the longer term. We can advise you on an optimal financial strategy and help you to find the best mortgage option. Our partner network consists of more than 100 financial institutions, so you will enjoy the most advantageous conditions possible when applying for a mortgage to suit your needs.
Current mortgage rates
The displayed interest rates are the best rates currently available. Your personal interest rates may vary depending on LTV, affordability, mortgage amount and the location of the property.