A repayment-free loan is mainly used in real estate financing, but is also conceivable as a purchase loan. The term “redemption-free” refers to the fact that the borrower only pays the accrued interest during the term of the loan agreement. The repayment of the loan takes place in a single sum to the expiration of the loan agreement. Another term for a repayment-free loan is term loan.
Form the credit required for repayment
The borrower must of course not only apply interest accrued on a repayment-free loan during the term, but also build up a fortune that he can use at the end of the contract period for the loan repayment. This is primarily a capital life insurance. A possible alternative is savings plans. If, due to a high profit participation or a positive price development, the payout amount of the life insurance or the value of the fund savings plan is higher than the loan amount to be repaid, the excess amount is of course available to the borrower for free use.
However, if he has not achieved the hoped-for amount, he must either resort to any existing assets or take another loan. This risk can be ruled out by the conclusion of a conservative bank savings plan, but with very low returns.
The possible contract partner for a repayment-free loan
Repayment-free loans are among the credit products that are primarily offered by insurers. These conclude with their customers on the one hand the credit agreement and on the other hand an insurance contract. For several years, more and more banks are also offering term loans. The formation of the credit for the loan repayment at the end of the contract period in this case usually takes place via a fund savings plan or a bank savings plan.
Another possibility is the combination of the repayment-free loan with a Construction loan contract, the Construction loan sum is used at the end of the term for loan repayment. With this combination, the borrower benefits from the favorable interest rates on the building savings loan and government subsidies during the saving phase. However, he must repay the credit portion of the loan repayment amount paid in the following years.
For what purpose are repayment-free loans possible?
The classic purpose of a repayment-free loan is the purchase of a used property or in the construction of a new house. Real estate loans for other purposes, such as the renovation of an existing property, can also be carried out as repayment-free real estate loans. Many insurers and banks explicitly restrict the granting of unpaid loans to the financing of property related projects.
On the other hand, maturing purchase loans are among the rather rare and relatively new types of financial products. Consumers sometimes rate grace-free loans as more flexible than traditional financing. In fact, the monthly payments into the fund savings plan or the life insurance can be relatively easily reduced within the term, while the banks do not always agree to a reduction in the monthly rates for classic loans.
Even the non-agreed non-payment of savings rates or insurance premiums does not lead to the termination of the loan agreement, as the customer meets its conditions with the settlement of interest.
Anyone who makes use of the possibility of reducing the deposits for the savings contract or the insurance contract, however, gets into trouble at the latest when the total loan amount expires at the end of the due date. It is therefore advisable not to exploit the theoretically available possibility of reducing the monthly savings. Without doubt, the mortgage-free loan that is automatically linked to this is an advantage in the case of a mortgage-free loan.
If the borrower dies during the term, it will pay the remaining installments. From a tax point of view, financing via a repayment-free loan for rented residential real estate is worthwhile. With these, the owner can claim the entire incurred loan interest for tax purposes.
5 tips on a repayment-free loan
Tip 1: What is a repayment-free loan?
A repayment-free loan works basically like a normal loan. You go to a bank or another bank and apply for a loan. After approval, the money is transferred to the account as with a conventional installment loan. The money can now, depending on the agreement, for a renovation, a home purchase, or use at will.
The difference is reflected in the repayment. A normal monthly charge is the repayment, ie the amount by which the loan amount is repaid. The second part is the interest rate (p%), which is the “profit for the bank” that you pay to get a loan. This can be adjusted to the fluctuations in interest rates (variable), or predefined. With a repayment-free loan, only the interest is paid.
Tip 2: Which equipment can I use for compensation?
Since only the interest will be paid, the loan level will not decrease. As a rule, it is agreed with the participating bank that the repayment contribution will instead be invested in another investment. The loan is repaid with the money from the investment at a certain point in time, exactly when the amount on the investment matches the loan amount. Investment funds, insurances, Construction loan contracts and in some cases even savings accounts are possible.
Tip 3: Benefits for you!
More flexibility, as the repayment installments can be changed by arrangement and you are not bound by a loan agreement. Smaller monthly burden on the lending institution. Possibly, interest gains are possible as soon as the alternative investment yields more credit interest than the loan calls debit interest.
Tip 4: Attention!
The risk with this form of credit is that the interest rate development of the investment in which the repayment installment is invested will be worse than expected. This can happen if no fixed or minimum interest rate (floor) has been agreed for the entire term. As a result, the investment may not have the required amount at the agreed time because the interest rate has been overestimated. An example for clarification:
- Expected interest rate development: 3% at 100,000, – € over 10 years, makes 30,000, – €
- Actual interest rate development: 1.5%, makes 15,000, – €
That would be a difference of 15.000, – € in this example. This difference is missing from the borrower. He would get into trouble now because he can not replace the loan in time and so shifts the entire financing.
For this reason, it is extremely important to include risk buffers.
Tip 5: Which documents do I need?
For the smoothest and most efficient process, it is advisable to have the following documents ready for an appointment. This includes at least the last three salary statements , as the lending institution requires proof of salary. The labor income usually has to be presented to check whether the contract is temporary. Normally, a household bill is used to check which monthly load is acceptable.
Identification requires an identity card or passport. A listing of assets is also welcome. To conclude a “residual debt insurance” is recommended. It protects in different scenarios. Which of these should be hedged is determined by the borrower. Possible in principle are unemployment, accidental disability and even death. This prevents the remaining amount from falling back on the survivors should an emergency arise.