At a time when real-estate loans have never been lower, it’s time to set things straight. Are you planning on building, renovating or expanding your home? Are you looking for financing to invest in real estate or acquire a second home? Before getting started, you’ll surely have to go through your bank to estimate the amount of the loan you can take out. IMMOTOP.LU has summarized for you everything you need to know about real-estate credit.

Build your real-estate financing plan

When you first meet with your bank or real-estate credit broker, you will:

• Present your profile: whether you’re taking out the loan together or as a couple, what type of work contract you have, your salary and other income, etc.
• Detail your plan: buying a house or condo, rental investment, the estimated price of the project or the purchase price, etc.
• Present your financing possibilities: personal contribution, any current credit, duration of the loan, etc.

Using this information, the bank or broker will analyze your borrowing and debt potential, after which you can talk about financing possibilities depending on the type of loan.

Choose your real-estate loan package

There are 3 main real-estate loan packages:

• Fixed-rate loan: this is the safest kind of loan in that you know the amount of your monthly payments for the entire duration of the loan. Your interest rate will not depend on the financial markets. The advantage here is having a rate that will not increase, but the disadvantage is that if fluctuations in the financial markets are favorable, you could have benefited from a better rate on that date. Also note that a fixed rate can be higher than in other packages, and that you’ll probably have to pay a penalty to your bank if you repay your loan early.
• Variable-rate loan: this will depend on the financial markets, and your monthly payments will vary according to their fluctuations. In general, the interest rate on this loan is lower than a fixed-rate loan, but it will then vary with no guarantee of the amount of the monthly rate. However, you can make early payments without paying any penalties (still verify this with your banker).
• Revisable-rate loan: this loan package will differ depending on the bank. The idea is to guarantee you a fixed rate for a certain number of years. Then, depending on the bank, you can then choose the loan package or you can end it with a variable rate until the end of your loan period. Note that if rate increase during the first part of your loan repayment, you may have to revise your contract at a higher rate, or conversely, you may benefit from a lower rate in the best-case scenario.

Your financial advisor can give you the best information for your personal situation and your project. Some banks may expand their range of packages, so contact your banker to find out what borrowing opportunities are best for you. In any case, take the time to analyze and compare all your financing offers. That way, you won’t have any questions once you eventually sign your contract.

Next week, check out the follow-up to this article: guarantees and insurance on real-estate loan, tax breaks and governmental assistance.

In the meantime, check out the real-estate credit calculator provided by our partner ING.


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