With the purchase of your own property, many people fulfill a great desire. You want to build wealth, you want to live rent-free in old age, you want to fulfill the dream of the individual object. If after a few years, a modernization of the house or apartment is pending, the question of financing arises. A modernization loan is well suited, provided that you meet the requirements. Then it can be a low-interest alternative to the installment loan, which helps you quickly and safely to your dream home.
The modernization loan is earmarked
A modernization loan is basically a classic installment loan. This means you take out the loan for the desired loan amount. You agree with your bank the repayment term. They clarify the amount of the monthly loan installment and the desired repayment. In return, the bank makes you an offer with all conditions including interest. With a credit comparison calculator you can compare the conditions and especially the cost of borrowing and find your favorite.
Unlike the classic installment loan, however, the modernization loan is earmarked. This means that the bank only offers low interest rates because you modernize a property. You must therefore use the financing to carry out value-preserving or value-enhancing measures on your property. Any other use is out of the question. If you change your mind after applying for the loan, the money you have raised can not be used for any purpose. Rather, they are bound to carry out a modernization measure in order to preserve the earmarking of the funding. You do not need to document the exact nature and execution of the measure in the credit agreement, so that you will retain your free choice to a certain extent.
Modernization gives you the choice
Your modernization loan should serve to maintain or increase the value of your property. The measures that may be taken are set out in paragraph 555b of the Civil Code. Permitted are works that sustainably reduce energy or water consumption or permanently increase the utility value of the object. An improvement of the general living conditions is also part of it. Modernization also requires the creation of new living space. Credit institutions are not necessarily bound by the definition of the Civil Code when approving loans. Often there is no clear distinction between maintenance and modernization. Therefore, you should definitely specify your proposed loan application process to ensure that it is actually considered value preserving or value added.
Typical modernization measures are, for example, the replacement of the heating system, the renovation of the roof including the energetic renovation, the window replacement, the insulation of the external facade, the renovation of the bathroom or terrace, the installation of a conservatory or the insulation of the basement ceiling. In order to prove the earmarking, you usually have to submit the invoices to the bank once.
Advantages and disadvantages of the modernization loan
The biggest advantage of the modernization loan is certainly the low interest rates. Since the financing is a valuable property, many banks offer a modernization loan considerably cheaper than a consumer credit. The low interest rates reduce the costs of your financing immediately. You can use this savings for a higher eradication and then become debt free faster. Alternatively, opt for a lower loan installment per month, keeping your financial leeway at a comfortable level. As a rule, the modernization loan does not need to be hedged. Thus, a mortgage is usually not required. If the bank demands the registration or increase of the mortgage due to the amount of the modernization loan, this is quite easy to carry out. Although there are notaries and land registry costs, but these are manageable.
The disadvantage is the earmarking of the loan to evaluate. This means you have to use the borrowed money for the modernization measure. Any other use is not permitted. It is also necessary to know that only the owner of the property may accept a modernization loan. As a tenant you do not have this possibility of financing.
You should pay attention to these tips
So that your modernization loan suits you optimally, you should consider some details before the loan application.
1. Like any loan, the modernization loan is only given to borrowers with solid credit ratings. Therefore, your score should be fine and contain no negative entries. You should also have a regular income and be in permanent employment. As a self-employed person, you must also prove regular income so that the bank rates your credit rating positively.
2. Comparing the terms of a modernization loan is just as important as with a classic installment loan. Almost all major banks offer a modernization loan. This means that you have a wealth of offers available. Check the conditions of the banks and above all take a close look at the interest rates. This will ensure that your loan fits in with you and will not be unnecessarily expensive.
3. Agree with the bank to make special repayments. At least five percent of the loan amount should be paid each year as a free special repayment. So you are faster debt-free and expand your financial flexibility every month.
4. The Bank may not charge processing fees for processing and credit approval. Check the bank offer and, in an emergency, indicate that costs for processing the loan are not allowed. This saves you money.
5. For large sums of money, the bank may require a share of equity. Usually 20 to 30 percent of the loan amount. If you are planning an expensive modernization measure, you should definitely save this equity beforehand.
If you stick to these tips, nothing should stand in the way of a cheap modernization loan. Feel free to check the conditions for our Harry Potter home loan and modernization loan .