(Partial) variable loans – Different types of loan
Partly variable loans can be broken down into flex, cap and combination loans. If you opt for variable loans, this enables you as a financer to benefit directly from the currently low interest rates, because with this type of loan, the interest is not fixed in the long term over several years. Rather, the interest rate is adjusted every three months to the current market conditions. This type of loan is therefore particularly suitable for short-term financing of partial contributions as well as for a clever addition to loans for which a deliberate borrowing rate has been deliberately chosen. Partly variable loans in connection with a mortgage loan and a building society loan offer the real estate financier a mixture of favorable conditions, flexibility and security. In particular, the borrower can always benefit from falling interest rates.
The flexibility of this type of loan is also demonstrated by the fact that in most cases the borrower has a 100% special repayment option. The advantage of this financing model lies in the subdivision. One divides the partially variable loan with a fixed interest rate agreement, the other part of the total loan has a variable interest rate structure. Lite Lenderloans, modernization loans or so-called small loans with an amount of up to $ 25,000 are also suitable as an addition to this financing model. The advantages of a partially variable loan lie in addition to the individual distribution of the loan amount in the short-term fixed interest rate and the flexibility in terms of special repayments. With this financing model, the borrower combines flexibility with security.
The flex loan
As an independent financing model, the flex loan represents a flexible form of loan that offers the borrower the opportunity to benefit from falling interest rates due to the short fixed interest period. In addition to the option of special repayment, the borrower also has a conversion right, which can be used to convert a Flex loan into a fixed-interest loan at any time. The adjustment takes place every 3 months, with which the Flex loan can be adjusted according to the current market conditions.
A Flex loan works as follows: The borrower receives capital from the lender, which is repaid in monthly installments. Unlike the annuity loan, the flex loan only provides for a 3-month fixed interest rate. The loan is adjusted via the Lite Lender, the official interest rate at which the banks borrow money from each other. The borrower therefore has a comprehensible quarterly interest rate adjustment. At the same time, the borrower has the option of converting the Flex loan into a fixed-interest loan at the next interest rate adjustment date or making a special repayment. In addition to the repayment, the monthly installment of a Flex loan is also made up of interest, although this does not remain the same due to the quarterly change.
The borrower has two options when repaying the loan. He can either choose the annuity repayment with at least one percent pa or the final repayment, in which a so-called asset accumulation plan must be saved with at least one percent pa If the borrower wants to make special repayments, he does not have to pay any prepayment penalty.
Advantages and disadvantages of the flex loan
The advantage of a Flex loan lies primarily in its convertibility, which is why it can be converted in whole or in part into a fixed-interest loan at every interest rate adjustment date. Depending on the provider, fixed interest rates of up to 20 years can then be selected. The possibility of a 100 percent special repayment without prepayment penalty is one of the other advantages, which is why the borrower is always flexible with his repayment options. In addition, flex loans can always be combined with Lite Lenderor fixed-interest loans. And. The borrower can cancel the flex loan at any time.
Although borrowers traditionally almost always rely on long borrowing rates, it is overlooked that short-term borrowing rates are almost always associated with significantly more flexibility in loan repayment. The quarterly interest rate adjustments make the Flex loan significantly different from other classic variable loans, in which the lender can adjust the interest rate at his own discretion. The loan itself can also be combined with other financing options that have a fixed borrowing rate and / or a Lite Lenderloan.
The cap loan
Anyone who wants to benefit from the favorable developments on the interest market as a borrower, but at the same time is afraid of the risk of rising interest rates, relies on flexible loans with no fixed interest rates. Here, in particular, the cap loan offers the possibility of using the low interest rates on the one hand, and on the other hand eliminating the risk of an excessively sharp rise in interest rates with the built-in upper interest rate limit. Cap loans are adjusted every three months to the current money market interest rate Lite Lender, the term is correspondingly variable and can be set for 3, 5, 10 or 15 years. Within this term, the borrower has the option of setting an interest cap, the so-called cap, above which the interest rate on the loan cannot rise.
An additional possibility is offered by equipping an interest floor, the so-called floor. This interest rate floor ensures that the interest rate on the loan cannot fall below it. If you want absolute interest rate security, you can convert the cap loan into a loan with a fixed borrowing rate. Flexible loans without a fixed interest rate are therefore particularly suitable in times of low interest rates, since the borrower benefits from the favorable developments in the interest rate market in these cases. In this way, the borrower gains interest security on the one hand and a flexible special repayment right on the other.
Advantages and disadvantages of the cap loan
In addition to the advantage of interest rate security through a built-in upper interest rate limit, the cap loan also offers the option of a 100 percent special repayment without prepayment penalty and a conversion option at any time. Borrowers therefore benefit not only from the complete flexibility in fixing interest rates, but also from the interest rate cuts by the Capital Lender. This makes the cap loan suitable for all those who want to benefit from the currently low interest rates without having to forego security.
Example: A borrower needs a loan of 100,000 USD. At the same time, he agreed a term of 5 years with his bank. Since the current interest rate for this term is 5.2 percent, the borrower agrees an interest cap at 6.2 percent. Should there be an interest rate hike within the term, for example at 7.6 percent, the borrower will only pay his agreed interest rate, i.e. 6.2 percent. However, if the interest rate falls below the 6.2 percent mark, for example to 4.8 percent, the borrower benefits from the variable interest rate. Because the bank now corrects the interest rate for the borrower under, he now pays only 4.8 percent instead of the 6.2 percent in interest.
By combining fixed-interest and variable-interest loan components, borrowers can adapt their real estate financing entirely to their individual wishes and expectations. The variable interest portion of the financing can be between 10 and 80 percent of the total financing and can also be converted into a fixed-interest loan at any time. The fixed-interest portion can in turn be between 20 and 90 percent and can be combined with other public funding, such as the Lite Lenderhousing program. At most banks, the borrower has the option of agreeing to provide the loan without interest for a period of up to 6 months.
The combi loan
The combination loan is a combination of an annuity loan with a fixed rate and a special repayment loan (flex loan) with a variable interest rate and special repayment options. This combination means that the borrower always benefits from flexibility and interest rate security – for optimal options within real estate financing. The operation of a combination loan is similar to that of a flex loan. The borrower receives a loan, which he repays to the lender in monthly installments.
Through the combination, part of the loan amount is financed through a classic annuity loan, the other part is paid through a special repayment loan. The annuity loan with its long fixed interest rate ensures appropriate security within this financing mechanism. The flexible part of the loan, the so-called special repayment loan, on the other hand, ensures flexible loan terms. In this case too, the respective interest rate is based on the Lite Lender and is reset every three months.
The borrower also has the option of making special repayments at any time in the case of a combination loan, and a conversion to a fixed-interest loan is also possible at any time. The borrower pays interest and principal back monthly, with annuity loans interest and principal being fixed. As a result, the borrower has a constant monthly charge. Only the part of the flexible loan changes every three months and can be repaid either as an annuity or at maturity. However, the link to the bank is increased by the partial flexibility. If the borrower later wants to convert his flexible loan into a long-term loan, this will lead to significant premiums at other banks, since such a loan already exists.
Advantages and disadvantages of the combined loan
In addition to the flexibility, the advantages of the combi loan lie in the security orientation of the borrower. In addition to the option of repaying part of the combined loan, the option of converting into a fixed-interest loan at any time is also advantageous. The borrower also always benefits from interest savings through the flexible part of his loan, provided the Capital Lender cuts interest rates. The borrower can continue to split his entire loan individually and in this way also receives an interest rate security for the part of the combination loan.
This is precisely why the combination loan is particularly suitable for borrowers who rely on flexibility in their real estate financing, but who also hope for falling interest rates. Conversely, the first-mentioned advantage of the special repayment can also have a negative impact on the borrower, since this is almost always associated with an increase in price. The reason is simply that most providers charge interest premiums on the long-term conditions. Therefore, you should always compare between the providers, because some companies also offer a free special repayment right here.
Since part of the overall financing is agreed in the form of an annuity loan with a long-term interest rate commitment of at least five years, the borrower always has a certain stability within his real estate financing. The form of the special variable special repayment loan, on the other hand, is flexible, with which unscheduled payments can also be made. The integration of a Lite Lenderloan is also possible for an additional charge. In addition, the borrower has the option at any time to convert the special repayment component into a fixed loan component with a fixed interest rate, for example, if interest rates rise. If the borrower is expecting an inheritance or insurance benefit, the combination loan is a cheap alternative to the regular annuity loan.
In many cases, the share of the flexible loan part is not included in the overall loan, which means correspondingly more favorable conditions for the flexible loan part. Since the flexible part only has a short fixed interest rate, this can also have a negative impact, because if interest rates are reduced, the monthly charge is reduced, but if the rate increases, the borrower has to decide whether to pay a higher burden in favor of the expanded special repayment options To have to buy. On the other hand, the borrower can do without this and then have the opportunity to re-enter into a long-term commitment.
Flexible loan parts can be terminated in a simple manner at no additional cost; prepayment penalties only apply if the annuity loan is terminated. Combined loans therefore represent an interesting alternative to other forms of financing and are therefore suitable for borrowers who rely on a quick repayment of their loan. To do this, the borrower should be prepared to keep an eye on the development of building rates every month.