Interim financing: Intermediate loan when buying a house!
What is interim financing?
Interim financing is necessary in the context of construction and real estate financing if you have to pay a larger amount and expect the relevant amount, but do not have it yet. In other words, there is equity capital, but you cannot use it yet. In this case, you take out an interim loan that bridges the time between the due date of payment and your own payment.
When does an interim loan make sense?
There are various situations in which interim financing around the house can be considered. Here are three examples:
Example 1: The building society contract is not yet ready for allocation
You have found the right house and want to close the deal. To get the necessary home loan, you need a certain amount of equity. However, part of the equity is in a home loan savings contract that is not yet ready for allocation and will only be paid out in a few months. With an interim loan, you can bridge the missing portion until payment is made.
Example 2: When buying a house, you lack the proceeds from the sale of your old property
You want to sell your previous house because of a move and buy a new one at your new place of residence. Then you may have to pay for the new house, but have not yet received the full amount from the buyer of your old house. For this temporary bottleneck, take out interim financing.
Example 3: The payment of a life insurance is delayed
You are in the middle of building a house and have to finance the next construction phase. In order to be able to pay the building costs incurred, you expected to have life insurance or another financial investment paid out. If this is delayed, you can take out interim financing to bridge the gap.
In most cases, interim financing in connection with construction financing is concluded. But there are also other areas where this can make sense. For example, investments in a company can be financed temporarily. This is also possible for private individuals. The repair of your car can be financed with an instant loan.
How does interim financing work?
Interim financing has a number of peculiarities in comparison with a conventional building loan.
- Interim loans are only granted with a term of up to 24 months. The time of the availability of the money is decisive for the term, for example the payment of the building loan contract.
- The amount of the loan depends on the expected sum of the incoming money.
- There is no fixed interest rate over the entire term, it is negotiated individually. Interest rates are adjusted every 3 months to reflect the current market situation and interest rate developments.
- Only interest is paid during the term, the repayment is made in full at the end.
- Interim financing is more expensive than regular mortgage lending because the bank can make little profit with the short term. Banks also take greater risks because they have less collateral.
- In many cases, claims on the expected payment must be made to the bank as security.
- Interim financing is also possible without entering a land charge in the land register. However, many banks insist on having security for the loan.
What is the interest rate for interim financing?
With interim financing, the interest is generally higher than with long-term construction financing. So you have to expect higher costs. This is due to the increased risk of default on an interim loan. Since the banks decide on the basis of an applicant’s individual requirements and the current market situation, no general interest rate for interim financing can be given. In contrast to a classic installment loan or car financing, interest rates are variable and change during the term of the interim loan.
You will receive long-term real estate interest from:
Representative example according to §6 PangV: effective annual interest rate 0.21%, fixed debit interest rate 0.20%, net loan amount $ 150,000, fixed interest rate 5 years, repayment 2%, interest costs $ 1,497.32, accedo, status: today | Sample calculation
Do you want to calculate your individual interest? In our construction money comparison, you can choose from 400 providers and get a free, non-binding offer.
What is the difference between pre-financing and interim financing?
Interim financing is also often equated with the term pre-financing. But this is not correct because there is a difference between the two forms. With an interim loan, the receipt of money is secure. The amount to be financed is secured, for example, by a signed sales contract for the old house.
In the case of pre-financing, however, the repayment of the loan is not yet certain. This can be the case if the minimum term of an existing building society contract has not yet been reached. Then the availability of equity at a certain point in time is not yet finally certain.
This is how pre-financing differs from interim financing
- The bank is taking a higher risk.
- For this reason, higher interest rates are estimated.
- The terms are longer than with interim financing.
Already knew? A variable loan works in a similar way to interim financing. This form is one of the classic types of financing for real estate. Here, too, there is no fixed interest rate, there is an interest rate adjustment every 3 months. The advantage is that the variable loan can be repaid in full at any time without having to pay a prepayment penalty.
However, it is more expensive than an interim loan because you will have to pay notary fees and land register costs. In addition, the term of the variable loan is not limited and the monthly installments consist of both interest and a repayment component.
What are the advantages and disadvantages of interim financing?
An interim loan cannot always be avoided. If you are thinking of taking out interim financing for your property, consider the pros and cons.
The advantages of interim financing
- You can bridge waiting times if you need financial means that are available to you from your own resources later.
- If the interim financing runs through the bank, which also finances the house construction or the property purchase, you have the usual contact person there.
- Since the bank already knows your financial situation in this case, a quick decision on lending is possible.
- The debt can be repaid relatively quickly because the term is limited and only goes until the expected amount of money is paid out.
The disadvantages of interim financing
- You pay higher interest than with a regular building loan.
- Paying the monthly interest charges your budget.
- You take an interest rate risk because the interest rate can change and increase during the term.
- In addition, the banks charge a processing fee for interim financing. This can amount to 1 to 2% of the loan amount.
What are the requirements for the interim financing of a property?
As with all other types of loans, the lender expects you to meet some conditions. To get an interim loan, you must meet the following requirements:
- The amount financed by the bank must be available to you within the term of the interim loan, so that you can, for example, repay the interim financing with the home savings contract paid out.
- At many banks, you receive interim financing only in connection with a longer-term follow-up loan. This does not have to be a disadvantage for you, since you can then clarify all questions with just one building finance partner.
- In most cases, you will need to provide the bank with the expected cash received as collateral. The bank may also insist on having the interim financing entered as a land charge in the land register.
- Your credit rating must be given. As with any other loan, such as a car loan, the bank will check your credit rating. To do this, she will obtain information from Credit Bureau in order to receive credit-relevant information about you.