Anyone who wants to or has to finance a property now faces a dilemma: on the one hand, the lending rates are low, on the other hand, the lenders hardly pass on the favorable interest rates on long-term mortgages to borrowers. Therefore, prospective borrowers should look for financing alternatives that enable cheap lending rates.
Reference rate bank loan
The Reference rate bank loan is linked to the interest rate of the Agree bank. This does not mean that the same conditions apply, the interest rate is currently around one percent higher, but the interest rate curve adapts to the Reference rate bank loan interest rates. The interest rate is changed every three months. In this respect, this loan is also a variable loan.
However, since a variable loan will become too expensive for the majority of borrowers in the long term – especially if the interest rate rises – numerous lenders also offer a switch to a fixed-interest loan at the same time. The combination of Reference rate bank loan and fixed-rate loans is also known as a flex loan. This form of loan offers customers many advantages: on the one hand, they can switch from the variable loan to the fixed interest rate when interest rates rise again, and on the other hand, the other conditions are also borrower-friendly.
This means that special repayments can be made at each end of the interest rate section without having to pay a prepayment penalty. If you expect larger sums of money, for example from inheritances or severance payments, you have the prospect of repaying the loan in full within one year without having to pay prepayment penalties or interest premiums.
The Flex or Reference rate bank loan requires some market knowledge from the borrower. The interest rate market must be constantly monitored, otherwise there is a risk of missing a good time to jump into the fixed-interest loan.
Good lender loan
The Good lender loan is actually nothing more than a (variable) Reference rate bank loan, but there are some essential differences: it is a loan with an interest rate cap. In the contract, for example, an upper limit is set up to which the loan interest can rise. This interest barrier works when the interest rates of the Agree bank rise above the previously defined upper limit. In addition, the contract has a term of up to 15 years.
That means: a Good lender loan is nothing more than a tamed, variable loan. However, you do not get the interest rate limit as a gift, a small premium over a variable loan is due, the so-called cap premium, which is added to the loan interest. High special repayments are possible during the term. This product is interesting for those who want to secure the low building rates but do not want to keep an eye on their financing in order to always benefit from the best possible rates. Of course, it is also possible to combine a flex loan with a cap.
Both types of credit are currently useful. If you don’t want to expose yourself to any interest rate risk, you should definitely choose the cap variant. There is a little bit of bitterness: Usually the credit expectations of the lenders are higher than with a classic annuity loan. Both forms of financing offer particularly low interest rates and high special repayments are also conceivable.