A combined loan is a loan composed of two types of credit, in which a fixed-interest loan (annuity loan) is combined with a variable loan. Combined loans are also known as partially variable loans. Especially when it comes to mortgage lending, many developers want to benefit from the currently low interest rates on the interest rate market. At the same time, however, there is also a desire for the option of a special repayment. Special repayments are often associated with interest premiums, which the lenders demand on the long-term conditions. On the other hand, the builders enjoy a free special repayment right in this way.
The fixed interest rate for the variable loan is always 3 months, after which the interest is automatically adjusted again. As a result, the interest rate can of course not only decrease, but also increase. In contrast, the long-term loan is subject to fixed interest rates of between 5 and 25 years. In the case of a variable loan, the borrower has the option of either repaying it at the end of each month or only partially. Even with a fixed annuity loan, it is possible to provide this with special repayment options. Specifically, this means that with this financing variant, on the one hand, the attractive conditions can be used, on the other hand, high special repayment options are available. If a contract then becomes due or an inheritance is pending, money can easily be invested in debt reduction.
Unfortunately, most builders or apartment and house buyers are not familiar with the “combi loan” financing option at all, because most banks do not tend to offer their customers this alternative of home financing. The problem is the higher need for advice.
How Compound Loans Work
So far, builders and home buyers have been required to rigidly pay off their classic annuity loan until the end. Nowadays, fierce competition between banks is increasingly producing individual and flexible offers in real estate financing. Those who have good credit ratings or sufficient collateral are increasingly being able to negotiate special repayments and different interest rate adjustment periods with banks. This usually goes so far that customers can largely determine their repayment freely. It is also possible to combine different mortgage lending models with one another today.
Nowadays, special repayments should always be part of his financing for any builder if he wants to shorten the path to debt free. So if you are looking for the planning security of an annuity loan and want to combine it with a variable loan, you are opting for a combination loan. For all other usual types of mortgage loans, banks in most cases require corresponding interest premiums for a special repayment. In many cases, the amount that is also to be contributed to construction finance is also limited. These cost-intensive disadvantages can be largely avoided with a combination loan. Because the unscheduled deposits by the borrower not only reduce the loan amount, it also helps to save interest costs at the same time.
The amount of the flexible portion within a combo loan and the amount of the fixed interest rate depends on the borrower as well as the provider. from. Example: A real estate financer needs a loan of 200,000 USD for his property. To do this, he chooses a combination of a fixed-interest loan with a loan amount of USD 100,000 with a 10-year fixed interest rate and a variable loan in the amount of the remaining USD 100,000. This advantageous mix makes combined loans particularly suitable for all those borrowers who, in addition to interest rate security, also want enough flexibility in their repayment when financing their real estate.
The long-term annuity loan is also an alternative to the combi loan. This also offers the borrower a corresponding flexibility, since this loan can be repaid completely and free of charge at any time from the 3rd year. However, in the case of annuity loans, special repayments must be agreed with the respective credit institution.
The advantages and disadvantages of combination loans
The advantages of the combi loan lie in particular in its flexibility, because unlike the usual special repayment options, the borrower has a three-month special repayment option. At the same time, he takes full advantage of the interest rate reduction measures implemented by the LLB, combined with the possibility of converting into a longer-term borrowing rate at any time should the interest rate rise sharply again.
If the market shows falling building rates, real estate financiers with a variable loan have the opportunity to benefit directly from the interest rate cuts. Another advantage is the up to 100 percent special repayment option of the variable loan tranche. In this way, loan costs of several thousand USD can be saved. The disadvantage always results in rising interest rates, because the rate of the variable loan tranche becomes more expensive here.
An additional advantage of the combi loan is the fact that most lending banks do not include the variable portion in the loan. As a result, the interest rate for the long-term loan is reduced accordingly. However, one should not lose sight of the interest rate trend. Because if interest rates rise quickly, there is a risk that the variable portion of the loan will become more expensive. Therefore, it can quickly happen that the interest rates on the variable loan are higher than the interest rate on the annuity loan. If this happens, the borrower should quickly convert the variable portion of their loan into a fixed rate loan.
Who are combo loans suitable for?
Combi loans are particularly suitable for borrowers who expect additional income over a short to medium-term period. This target group benefits from the variable loan tranche as well as all those who can look forward to a (rising) rising salary in the future. This can be achieved on the one hand by a promotion or on the other hand by taking more profits as a self-employed person. In all of these cases, borrowers now have the option of repaying their variable loan portion within the credit line even faster. This mixed form is also suitable for borrowers who speculate on falling mortgage rates in the medium term. To this end, borrowers should, however, be prepared to keep a close eye on the development of building rates every month.
A combination loan is also suitable for all those who want to make high special payments after the sale of an old property, for example. The same applies to those who benefit from a high depot resolution. In the case of a combination loan, the borrower must always be required to observe the interest rate development accordingly, so that the variable portion of the loan does not become extremely expensive.