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Mortgage lending: Beware of cap loans

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Due to the low mortgage rates, it is currently possible to take especially cheap real estate loans. Even loans that are subject to a longer fixed interest rate (eg 15 or 20 years) can be taken up very cheaply.

To get by far the lowest interest rates

To get by far the lowest interest rates

But some borrowers can not make friends with the interest premiums (which, strictly speaking, are very low) that these loans entail. To get by far the lowest interest rates, they are considering taking variable loans.

The interest in such loans has recently increased significantly. More and more banks and mortgage brokers are praising so-called cap loans.

This means that the interest rates are set low, but in return always adjusted

This means that the interest rates are set low, but in return always adjusted

These are variable loans with an upper limit on interest. What may sound a bit complicated at first is basically quite simple: Corresponding loans are subject to a variable interest rate, which makes them particularly cheap.

This means that the interest rates are set low, but in return always adjusted to the current interest rate trend – usually quarterly. So that the interest does not rise too much, there is a cap, the interest rate cap: it prevents the loan interest rate from exceeding a fixed barrier.

Reason is the actual upper limit of interest rate

Reason is the actual upper limit of interest rate

However, the cap loans are far from as interesting as they are advertised by many financial advisors. Reason is the actual upper limit of interest rate: It is set comparatively high, resulting in only a conditional protection. Those who want to be on the safe side opt for a loan with fixed interest rates.

With such a real estate loan, the interest rate as well as the term is exactly defined. This provides security and at the same time allows an accurate calculation. Borrowers can say exactly what their residual debt will be at a certain point in time.

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