Types of loans for a property purchase
The mortgage loan, a classic
Known and loved by many, the mortgage loan is a true classic when discussing financing options. There are two ways to repay a mortgage: in fixed monthly instalments or through fixed capital repayments. If you choose a fixed monthly instalment, you will pay off the same amount each month for the duration of the loan. If you opt for a fixed capital repayment, the monthly repayment will decrease gradually as you repay an increasing portion of the loan.
If you choose a mortgage loan, you automatically choose the lowest interest rate. The only disadvantage? You only really earn something on your real estate investment when your loan is completely paid off or when you sell it. Unless, of course, you can get a higher rental price for your property, but then you still have to get it rented out…
Reinstatement of your capital
Is your current mortgage loan almost completely paid off? Then you can borrow your previously borrowed amount again and invest it in a new purchase. In this case, you can take out the new loan at the interest rates applicable at the time.
Reborrowing your capital has its advantages, but also a disadvantage: although you may save on notary, registration and mortgage costs (you are not taking out a completely new loan), the mortgage still rests on your family home. So if something were to happen, your own home would be the first to be sold.
Have you ever heard of a bullet credit?
Have you ever heard of a bullet loan? No, that is not surprising, because a bullet loan is perhaps the least well-known financing option you can take out.
If you take out a bullet loan, you will only have to pay back the interest each month. The capital itself will only be repaid in one go at the end of the term. However, this form of financing is not available to just anyone. You will have to demonstrate to the bank that you have sufficient capital (or are working towards it), for example through your participation in a group insurance policy that is paid out, through an investment that becomes available or through the sale of a property with which you can repay sufficient capital.
If you opt for a bullet loan, then you can only borrow 70% of the full cost price, over a maximum term of 15 years. Interest rates are also higher than for a mortgage loan. The advantage of a Bullet Loan is that you can limit your monthly outgoings and that, consequently, you will actually earn something on your rental income.
Borrowing money also comes with conditions
When you take out a loan from the bank, it will always check whether you can actually repay the loan over time. The net income of the person taking out the loan is taken into account. A loan may only amount to between 30 and 40% of your total income. Of course, the bank also takes into account the possible rental income that your property will generate, although the bank does take into account that the property will not be permanently rented out.
Do you have further questions about taking out a loan and which option would suit you best? Then consult your bank, check the website of your national institution or contact Immowi, we will be happy to advise you!