Builders and borrowers wishing to take out a new loan or extend an existing loan in 2014 will closely monitor interest rates over the coming year. Although real estate loans can now be negotiated at historically low interest rates, the risks of higher interest rates increase, making it easy to meet lending requirements in the short term.
It depends on the centrum bank
The centrum bank around the globe generally specify the interest rates of the respective country or region by setting key interest rates. The lower the base rates, the cheaper borrowing, because the banks have the possibility of a favorable refinancing. Since the outbreak of the financial crisis in 2008, the centrum bank have consistently tried to promote new investments through historically low interest rates and thus prevent an economic collapse. In the meantime, the economies in Europe and the US are stabilizing and even enable slight growth. With this stabilization, the basic requirement of the “policy of cheap money” is no longer given. For some time now, the US has been talking about phasing out the US bond-buying program and reducing the amount of money in circulation. However, interest rates should remain low for a longer period in order not to jeopardize the beginning of the economic recovery.
Slight increase in long-term interest rates
Although key interest rates in Europe are still at an all-time low of 0.25 percent, the first signs of rising real estate lending rates are evident. The basis for the medium to long-term interest rates is less interest rates than the demand for corresponding fixed-income securities. And here it becomes clear that demand and thus interest rates are rising significantly. As this increases the costs of longer-term refinancing, banks must also increase the terms for mortgage lending. Although the increase in interest rates has so far been only slight, it could continue to increase steadily if demand continues to flourish. Finally, long-term interest rates also reflect the economic outlook for 2014, which is consistently positive in both Europe and the US.
How borrowers should react
Loan seekers who want to raise a new mortgage loan in 2014 in order to buy or build a house should look after the banks’ offers as soon as possible. Currently it is still possible to finance low and thus possibly save a few hundred euros interest costs. Since many banks provide a deployment time of a few months, the early termination is not associated with additional costs. At the same time, when signing a contract, it should be noted that the fixed interest rate is agreed on over 15 to 20 years if possible. These long fixed interest periods ensure that the loan is already largely repaid until the necessary extension and the potential interest rate risk can be reduced. In addition, it makes sense to include a special repayment option in the contract, as it is also possible to prematurely repay the loan in full or in part.
Secure interest rates with forward loans
Borrowers do not only receive interest rate security through long fixed interest periods. If the existing loan ends this year, borrowers can also make provision for forward loans. These loans are offered by numerous real estate banks and can be completed up to five years before the end of the fixed interest period. So if its fixed interest rate expires in one or two years, it can also react now and secure itself accordingly. The low interest rates then remain until the end of the fixed interest period.