Taking out a mortgage on an unfinished property

9 posts in this topic

Posted

All,

 

I’m buying a new flat in Berlin that won’t be ready until 2014.

 

The building company requires a down payment now of 30% of the full price. I plan to pay that in cash, so no mortgage needed. The next payment (35%) is not due for 1 year from now.

 

Nonetheless, my mortgage adviser has strongly recommended that I already sign up for a mortgage with him now. ;-) While that would lock me in to a very good rate, it will mean that I will be paying a pretty hefty fees to the bank every month, just for “keeping the money ready for me”. Does that make sense?

 

Other than the risk of the mortgage going up, are there any other good reasons for taking the mortgage now rather than in 9-12 months time?

 

Thanks!

Joe

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Posted

I don't fully understand. Your mortgage "adviser" wants you to make mortgage payments (with interest) from now until 2014 for a property that you won't be living in?

 

Wouldn't you do better to save that money and take a lesser mortgage when the time comes?

 

Excuse me if I have missed the underlying reason for this.

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Posted

So you have gone through the business of actually signing a purchase agreement in front of a notary so that you know exactly when each payment is due? Find it very strange that a down payment is required, and the next payment in a years time! I made 8 payments in the space of year, the last payment was made after I was given the keys to the flat at the hand over inspection. I couldn't take out a mortage because I hadn't saved any money into a building society for the minimum period of 7 years. Building Societies also usually required 40% of the purchase price to have been saved in a building society account that has a miserable interest rate. On top of that they also do a credit worthiness check and at the end of the day you could still be refused a mortgage. I think your mortgage advisor is suggesting you get a so called forward loan. This is indeed more expensive than your normal BS loan as you would be paying interest on the borrowed sum month after month without out being able to make any amortisation payments. Parallel to that you would be making payments in to a BS account which apon maturity would payoff your forward loan, leaving you 60% of the purchase price to payoff in a period between 7 to 11 years depending on the repayment model. So it is a quicker way to buying property, just more expensive than the classical way of saving now to buy later. In my case I found a bank that financed my flat to 100% - Notary fees, Taxes & Deed Title I paid out of my own pocket, expenses here that came to around €20,000, so these expenses should not be forgotten!

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Posted

 

I don't fully understand. Your mortgage "adviser" wants you to make mortgage payments (with interest) from now until 2014 for a property that you won't be living in?

 

He's probably talking about a procurement fee (Bereitstellungsgebühr). Normally the money is kept in the bank for free for a given amount of time. When that time is over you have to pay the fee.

 

Nobody can tell, what is best right now, to secure the interest rate or to save the fee. You would need to know the interest rates in a year from now.

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Posted

You asked the question so I will stick my head above the parapet, or just make a fool of myself, and give you an answer.

The ECB's interest rate is currently at 0.75%, that is 0.5% higher than the Fed's,0.25% higher than the BoE's and 0.65% higher than the BoJ's, so it is at least conceivable that it could be lowered - even all the way to 0%.

The Bundesbank has only just radically revised its growth forecast for 2012 downwards while maintaining that inflation is going to drop, so a rate hike by the ECB should be unlikely.

Hold back and don't listen to your mortgage adviser!

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Posted

All,

 

Thanks for the comments. I'm fully aware that interest rates can go down, or up. ;-) However, my main concern here is whether there are any OTHER reasons that I should be aware of, when making my decision. e.g. In 9 months time from now, might I find myself in a difficult situation, with Banks not willing to offer me a mortgage at all? Are there other key factors to consider? Do banks slap on extra fees or penalties when one decides to take a mortgage halfway through the construction period? Is there anything else I should be aware of?

 

@Sneffels: You're absolutely correct. The fees I'm referring to are the Bereitstellungsgebühren. Thanks! :-)

@LeChamois: Thanks for your comments on likelihood of rates going up or down. I fully agree with what you wrote. Makes sense! Thanks!

@enview: There are indeed 5 different stages in the payment. But this is a 2 year project, and the time gap between the 1st and 2nd stage is 1 year.

 

Any other thoughts?

 

Many thanks everyone!

Joe

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Posted

 

Nonetheless, my mortgage adviser has strongly recommended that I already sign up for a mortgage with him now.

 

So that he can meet or supercede his end of year targets by any chance? and get a nice bonus for doing so!

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Posted

Is it possible to finance the 70% and start paying it off now, using the flat as collateral? Or save the "payments" for the full 12 months and pay another deposit down, leaving only a third in need of a mortgage? I cannot imagine any bank that would not jump at the chance to lend only 30 to 50 percent and have first lien-holder whole rights, in case of default.

 

Just curious, just asking. No knowledge or money smarts to speak of here.

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Posted

@Erised: Unfortunately I don't believe that's possible. ;-) If I take a mortgage now on this property, the only thing I will be paying is Bereitstellungsgebühren. ;-)

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