Annuity loans are a common type of loan with constant repayment rates. They already bear their property in their name: the word annuity is derived from the Latin word “annus” – loosely translated, this means “year”.
With an annuity loan, you agree on a fixed annual rate over the entire term of the loan, the so-called annuity. This means that the rate is fixed for as long as the fixed interest rate has been agreed. The monthly installment of the annuity loan consists of an interest portion and a repayment portion. Since part of the remaining debt is
repaid with each installment, the interest portion is continuously reduced in favor of the repayment portion.
• Finance immediately and repay directly
• Loan rates that can be planned and calculated
• Flexible provision of the loan funds, which you can access within 24 months at no additional cost
• Free annual special repayment of up to 5% per year
In addition to the major advantages of the annuity loan, such as planning security, constant loan installments and the option of unscheduled repayments, there are two possible disadvantages that you can eliminate with good advance planning:
• No changes to the contract during the term: It is generally not possible to change
the contract during the fixed-interest period. This means that you should contractually agree certain options such as special repayments in advance.
• Interest rate risk after the fixed-interest period has expired: In the rarest of cases, the entire loan is paid off within the first fixed-interest period – making follow-up financing necessary. Since no one can make a forecast about the development of building interest rates, the interest rate is uncertain afterwards. However, you can protect yourself in good time, for example by taking out a forward loan before the deadline.
The initial repayment describes the portion of the total loan that is repaid with the first repayment installment within one year. This also means that the higher the initial repayment, the higher the loan repayment rates.
In general, as a builder and buyer, you have a certain amount of leeway in which you can freely choose your initial repayment. But choose them carefully!
A low initial repayment leads to low monthly installments, but in return the amount of your remaining debt is correspondingly high after the end of the first fixed-interest phase. As a result, it also takes much longer until you have paid off the loan in full. Due to interest rates rising again, you should ensure that you pay off as much of the debt as possible in the first fixed-interest phase of your annuity loan. In this way you reduce the remaining amount that you repay as part of follow-up financing – with possibly higher interest rates. Of course, you should still plan for buffers for reserves.