Is the ECB key interest rate cut good for low construction interest rates, so a cheap construction financing?
Although interest rates for construction money are currently at an unprecedented low level, prospective home builders or real estate investors can most likely expect construction interest rates to remain low, stagnant or increase only slightly in 2022. The reason is the decision of the European Central Bank (ECB) on 10.03.2016, the prime rate from 16.03.2016 to a historically low level of 0 percent.
Due to the turnaround in interest rates by the Federal Reserve, however, interest rates for construction financing are expected to rise again in the medium to long term. Use therefore the favorable building interest rates, in order to fulfill your dream of the own real estate!
What are the interest rates for construction financing dependent on??
The lower the interest rate p.a. (per annum / per year) for a private real estate financing (= construction financing) turns out, the lower the annual interest to be paid on the total loan amount. And the lower the interest payments, the lower the total repayment amount for the loan will be for you.
If you are considering private real estate financing, you will notice when comparing construction financing using the comparison calculator on our site that your personal interest rate for a construction loan depends on the following criteria:
- Capital market interest rates for loans
- Fixed interest period for building loans
- Initial annual repayment
- Loan amount / purchase price of the property
- Equity share for financing
- Mortgage lending value of the property
- Location of the property
- Use of the property
- Your personal credit rating / creditworthiness
1. Construction interest rates depend on the capital market
Interest rates for real estate loans depend on the capital market, as they are based on the yields for long-term mortgage bonds, bonds and federal bonds. Currently, there is a very high demand for safe bonds, which is why interest rates on these investments are at a very low level. Until 1. March 2016 published in what's known as the DGZF mortgage yield, which referred to refinancing real estate loans.
The level of yields for Pfandbriefe and bonds is influenced primarily by the key interest rates set by the European Central Bank (ECB). The ECB key interest rate thus influences the construction interest rates only indirectly. The ECB prime rate is used as a basic criterion for determining general lending rates, which includes mortgage rates for real estate financing. The associated relationship between supply and demand on the real estate market and the medium- to long-term interest rate trend on the capital market are included in the calculation of the interest rate amount. The market interest rate for construction financing is ca. 0.5 percentage points above the DGZF mortgage bond yield.