Your child’s first mortgage! – Loans
Most parents want to be able to help their children to their first own accommodation. But what to think about when they need a mortgage for a condominium or a house?
Before doing anything else, you should compare mortgage rates and terms between different banks. With Good Finance’s online service you can make such a comparison quickly, easily and with just one credit report. With us you also get personal and professional help from licensed advisers.
The best possible mortgage rate is important, as seemingly small differences can become significant amounts in the long run.
To help their children with the cash contribution
The first thing to consider next is the mortgage loan’s cash contribution. With the new amortization requirements, it must be at least 15% of the total price.
Of course, the easiest is if you can afford to give your children money for the cash contribution, if they do not have these themselves. This has become easier since the gift tax was abolished.
If, on the other hand, the parents want to borrow money on the apartment or house they live in, they must take into account the new amortization rules. Simply put, the loan must be accommodated within the allowable loan space and amortization requirements for the parents, even if the money is intended to help the children.
Another alternative is to take a regular consumer credit to help their children with the cash contribution. However, such a principle is always more expensive than a mortgage.
Does the calculation fit together?
A realistic calculation is the basis for all mortgages. An important point is that the loan must be repaid by an extra one percent if the value of the new home is higher than 4.5 times the household’s income. In addition, many banks apply a loan ceiling of a maximum of five to six times the household’s total income.
Since we are talking about young people, many may still be studying. Others are new to the job market and have not yet reached the pay levels that apply to more senior employees or have climbed the career ladder. This is important as the current income affects the repayment requirements and the loan ceiling.
Regarding the interest rate, one should not expect it to always be as low as it is today. Most credit institutions expect an interest rate of 7.5%, to be sure their borrowers are able to cope with a rate hike. The same precautionary principle should be applied by the borrower. Always expect the interest rate to rise. Especially as it is today uniquely low.
When buying new production, it can sometimes take several years between a mortgage loan offer and the real deal. During this time, many things change. Therefore, it cannot be expected that a multi-year old mortgage loan offer will still apply, at least not under the same conditions as before.
Many parents go into the custody of their children’s mortgages. If they are the owner of a home that has already been paid, their credit rating is normally considered good. But if the parents’ housing is highly leveraged, there can be problems. The bank simply wants to know that guarantors can bear the cost both for their own loans and for the loans for which they are good.
If a real spouse, girlfriend or boyfriend enters as a co-borrower for a home loan, it is important to know that both are fully liable for payment, individually. This is especially important to consider when it comes to young people, who sometimes have not fully established themselves in their relationships.
This is also important to keep in mind for the possible guarantors of each co-borrower. If you are in any way involved in a loan, you should be aware that it can end with you having to bear the full cost yourself.