Savvy Property Financing

Legendary investor John Paulson has clear advice on property ownership: “If you do not own a home, buy one”, he says. “If you already have one, buy another. If you already have two, buy a third. And also lend your relatives money, so that they can buy one too.”  Of course, everyone would like to live in their own four walls. The question is how to finance your dream home. As a first orientation we will introduce you to the most important tools and inform you about the most common mistakes. 

Savvy Property FinancingPlan meticulously and realistically

Your dream of owning a property stands and falls with your financing plan. Therefore you should start by thinking about how you will finance your property before you start looking for one. Only once you are aware of your financial options can you assess what properties are within your reach. As a general rule, owner builders as well property buyers should come up with an own capital of 20 to 30 percent of the purchase value. Keeping this in mind, it is advisable to check the actual state of your finances. What financial resources are at your disposal? What are your monthly expenses? This will provide you with an overview of how much you have available to finance your property. When doing the calculation, you should also take into account the monthly running expenses such as rates and taxes, insurance, water and electricity as well as heating. It is also recommendable to make provision for unforseen expenses. After all, what would be the use of owning a dream home if there is no money left to buy a new washing machine when the old one packs up.

Classic ways of financing property

The most common way to finance property is by taking up a mortgage loan, specifically an annuity loan which covers up to 80 percent of the costs involved. The main attribute of this type of loan is that the repayment rate remains constant over the payback period. This allows for maximum planning security. Thus the owner builder or buyer will know precisely how much to pay back every month, which protects against unpleasant surprises. This type of loan is particularly attractive in combination with a fixed interest rate, which is granted to the loan recipient over a long-term period and provides additional planning security. But instead of only using one type of financing, it might also be a good idea to consider a suitable financing mix. Apart from the classic mortgage loans there are also government-subsidised options, which should not be missed out on. These include the so-called Riester incentives, family subsidies, federal state incentives as well as favourable loans by the KfW development bank. If you have a building savings contract, this could of course also form part of your financing plan. No matter what combination you use in the end, it is always worthwhile to make a comparison of the various options. When doing so, you need to compare the effective interest and not the debit interest, as the effective interest contains all the applicable charges.

In light of historically low interest rates, buying a home has become more affordable than ever. Visit our website if you are looking to buy property. There you will find all the information on the diverse range of high quality houses and apartments that we have specialised in for over 35 years. 

Engel & Völkers

C/ Na Maria Pla 2-6
AD500 Andorra la Vella
+376 88 66 88

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