Mortgage interest rates are an important aspect for borrowers when planning costs and maturities. But what do mortgage rates actually depend on and what factors influence them?? After all, the mortgage rates currently payable are at a very low level.
The low interest rate, which is currently only 0.15 percent, plays a significant role here. But there are a number of other factors that are crucial and decisive in this regard.
Construction rates below two percent are not uncommon today and are quite affordable for many customers. Various factors, such as the creditworthiness of the borrower or the choice of fixed interest rate, play a role in the loan. In the end, these determine the final interest rate. For this reason, not every borrower can expect an extremely low interest rate. There are various aspects that determine the mortgage interest rate of a particular bank.
The most important factors for the mortgage rate at a glance
Overall, there are several aspects and factors that go into the mortgage rate that justify and justify the corresponding value. This includes these points, among others:
- The borrower's available equity capital.
- The interest rate structure – do you opt for a variable interest rate or do you choose a fixed interest rate??
- The borrower's current credit rating plays a role.
- Collateral that the borrower can offer the lender.
- The individual assessment of the lender – how does the borrower appear, how reputable does he seem?
Equity is a major factor in the decision
Banks that now offer mortgage rates of two percent or less almost automatically assume that customers will contribute a certain amount of equity to the financing. Such favorable loans are otherwise extremely rare when the borrower needs full financing. Then, for example, the full purchase or investment amount would have to be financed by the bank. 15 to 25 percent equity is required by many banks if the customer wants to benefit from a correspondingly low interest rate on the mortgage loan. The reason for this is simple: construction financing with appropriate equity is considered by lenders to be more stable and secure than a loan with full financing. In the area of interest rates, financing with equity capital can differ from full financing by 0.5 to 1.5 percent.
Decisive point: the creditworthiness of the borrower
The creditworthiness of the borrower is just as important as the possible equity capital. It is therefore a significant factor whether the customer has a good or rather bad credit rating. The SCHUFA records and the existing income mainly determine whether the customer is considered creditworthy and accordingly can obtain a favorable mortgage loan. A clean SCHUFA report is always positive, an average or higher income is also of high value. In this case, the bank will consider the borrower to be highly creditworthy.
If – on the other hand – the available income is rather low or there is even a negative entry in the SCHUFA, then the banks will usually demand a higher interest rate. This is due to the fact that the lender wants to be as sure as possible that he will get back the money he has lent. Also the complete refusal to a construction loan can then occur. There can be a difference of up to two percent in the interest rate between customers with good and mediocre credit ratings.
Variable interest or fixed interest – also very relevant
A third, quite serious and relevant factor is the contractual agreement on interest rates. The interest rate structure has a significant influence on the expected interest rate. Due to the current low interest rates for mortgages, many banks now prefer a variable interest rate. This can then be raised and adjusted when the ECB increases the interest rate. For borrowers, a long-term fixed interest rate is therefore quite more interesting and usually more lucrative.
The most favorable mortgage interest rates are therefore currently offered by the banks to customers who opt for a variable interest rate. The interest rates for the fixed-rate mortgage are correspondingly higher – and also rise even further if the fixed-rate mortgage is set for the long term. An example: the fixed-rate interest rate for a mortgage loan with a five-year fixed interest rate is 2.2 percent at a bank; if the interest rate were fixed for 15 years, the interest rate would be about 3.5 percent.