Construction loans are offered by various institutions: insurance companies, mortgage lender company, commercial lender company, cooperative lender company, savings lender company, building societies and private investors offer financial support when it comes to building or acquiring a property. This article is about what the basic differences are.
The construction loan from insurance companies
Insurance companies have to invest their customers’ money very securely. Investments in buildings are considered safe investments. But when it comes to building financing, something can always go wrong and a foreclosure may be necessary. At the compulsory auction, the loan granted should be able to be repaid in full if possible. For this reason, insurance companies must obtain the opinion of a sworn expert before specifying a loan.
The loans granted by the insurance company may go up to a maximum of 50% of the mortgage lending value determined by the appraiser. Since a full repayment of the loan is very likely, the loans of the insurance companies are one of the cheapest. Whether a life insurance policy has to be taken out for repayment or whether an annuity repayment is also possible depends on the contractual agreements.
Mortgage bank building loan
In principle, everything that applies to the loans from the insurance company applies to these loans. However, the mortgage lender company may lend up to 60% of the property value. The mortgage lender company refinance themselves via mortgage Pfandbriefe, which are considered to be particularly secure, as well as being safe from mortgages.
This security is based on the one hand on the fact that these loans may only go up to 60% of the property value and also on the fact that these mortgage Pfandbriefe are separable assets in the event of insolvency. These must first be satisfied before money can be distributed to other creditors. Due to the security, comparably low interest rates are also payable here.
The building loan from commercial lender company, cooperative lender company and savings lender company
These institutions may exceed the 60% limit when lending and do not require an expert opinion from a sworn expert, but the in-house real estate department may evaluate the property. The interest on these loans is higher because there is also a higher risk of repayment. In the case of a compulsory auction, it cannot necessarily be expected that the proceeds from the compulsory auction will repay the loan in full.
As with mortgage bank loans, different repayment options are possible: annuity repayment (the repayment increases each year by the interest saved, but the total amount of the installment remains the same) – repayment through life insurance – repayment through a building society contract.
The building loan from building societies
In addition to the fact that the previously discussed loans can also be repaid with an allotted home savings contract, the home savings principle consists of two parts: the savings phase and the repayment phase. In order to be able to take advantage of the low-interest home savings loan, the home saver must first save 40% to 50% of the home savings sum before being able to benefit from the loan. Since the interest on the home savings credit is very low, the home saver loses so much interest that he can generally no longer compensate for this loss by later lower interest on the loan.