Advantages and Disadvantages of Construction Loan

Building society marketing promotes large-scale building loans. Therefore, many people consider them more profitable than mortgages, which is only partially true. Usually, people who have succumbed to advertising, however, are not eligible for construction credit and will eventually use overpriced loans or less expensive mortgages.

 

What are the benefits of building credit?

credit

Guaranteed interest

Guaranteed interest

You still have the same interest in repaying a building loan throughout the repayment period. No surprises await you when changing mortgage fixations. You still pay the same installment.

Without proof of income and liability real estate

Without proof of income and liability real estate

For loans up to € 40,000, there is no need to document income or guarantee property. Building credit will provide you even if you did not have any income at that time or could not officially document it.

Extraordinary installments free of charge

Extraordinary installments free of charge

Building credit can be repaid early at any time. Extra payments and early repayment are free of charge. This is a huge advantage over mortgages that cannot be repaid at any time without charge.

Strict conditions for obtaining

The main disadvantage of building credit is the strict conditions for obtaining it. But whoever thinks of the future can prepare for them. In addition, due to the condition of obligatory saving of part of the target amount, you are taking a smaller loan and thus paying less on interest.

Higher installments, lower reimbursement

Higher installments, lower reimbursement

For building loans, the repayment period is shorter than for mortgages. This will be reflected on the one hand by lower interest payments and, on the other hand, on higher loan repayments.

An example of a building loan

To illustrate this, I will present 4 specific examples of unnamed building society.

target amount

50.000 €

50.000 €

50.000 €

50.000 €

optional allocation

50%

50%

50%

50%

yearly interest

4.70%

4.70%

2,90%

2,90%

repayment period

10,5 years

7 years

7.8 years

5.6 years

monthly payment

250 €

350 €

€ 300

400 €

There are a lot of options for building credits and different combinations, it is opaque and makes it difficult for ordinary people to choose. But on the other hand, thanks to this you can choose the right combination of credit according to your priorities. Depending on what is more important to you – monthly load, overpayment, or repayment period.

 

Regional differences

money

Financing of the purchase of real estate is usually used by people in regions where the value of real estate is significantly below the average in the SR. In larger cities with high real estate prices, where the price of a one-bedroom apartment exceeds 40,000 euros, it is almost impossible to use a building loan to finance the purchase.

Few people can save 50% of the necessary amount in a short time. Therefore, if they use it, they are mostly just for financing or reconstruction.

If you are faced with the decision to finance your home, a complete overview of market opportunities can help. You can circulate all banks yourself or you can reach your financial intermediary. It’s up to you. When choosing, however, be careful to save as much as possible.