The annuity loan is the most widely used form of financing real estate. You pay back the total debt in fixed installments. The rate (also called annuity) contains an interest portion and a repayment portion. Although actually only in the construction financing of annuity loans is spoken, actually each installment loan represents an annuity loan.
How does a installment loan work as an annuity loan?
With an installment loan that is granted as an annuity loan, you pay back the loan in monthly installments. The rate consists of an interest portion and a repayment portion. Initially, the rate consists almost entirely of interest and only very little is paid. As the interest payable decreases with each passing year, the repayment installment included in the installment increases accordingly.
Advantages of a installment loan as annuity loan
With an annuity loan, you have the greatest degree of planning security. You always pay the same rate over the entire term. The amount of the installment depends on the selected loan amount, the term and the annual percentage rate of charge. The amount of the interest rate depends not only on the general interest level, but also on the loan amount and the term. The longer the term, the higher the annual percentage rate is usually. For some banks, the level of the interest rate is also influenced by your credit rating. The higher this is, the lower the default risk for the bank. Accordingly, then a favorable interest rate is offered.
Annuity loan for mortgage lending
If the annuity loan is used to finance real estate, there is a fixed interest rate for a certain period of time. This is usually between five and ten years. During fixed interest, your monthly installments remain constant. After the end of the fixed interest period, you have the risk that these have increased in the meantime. That would increase your monthly burden. During the fixed interest period, you can not cancel the annuity loan.