Home Loan: Interest rate and duration

Home Loan: Interest rate and TERM

General explanations

  • A home loan is a loan to buy a property: building land, apartment, house, etc.
  • It is often in the form of a mortgage loan (a loan with a mortgage)
  • By mortgaging a property, the subscriber pledges a property (generally the property for which the loan is requested), which is the guarantee for the institution lending to the borrower
  • This pledged property is recorded in the mortgage registry and the lender (the lending institution) retains a right of priority of repayment if the borrower were to sell his property to settle his debts
  • Interests represent the cost of the home loan and therefore the remuneration for the lending institution.

Types of interest rates:

  • Variable rate

    • The financing method most used in Luxembourg
    • Updated on a frequent basis to reflect changes in market interest rates
    • Also offers the possibility of making additional repayments and thus reducing the term of the loan
    • Not very risky since the rate is the market rate
  • Revisable fixed rate

    • The interest rate is generally fixed for a period of 3, 5 or 10 years
    • During this period, the rate remains unchanged. The borrower thus knows the exact amount to be repaid and is protected against any increase in interest rates until the next revision of rates
    • At the end of the chosen period, the interest rate is revised and can again be fixed for a specified period or replaced by a variable rate
  • Long term fixed rate

    • The rate is fixed at the signature of the contract for the entire contract period (generally 15 or 20 years)
    • Advantage: the exact amount of repayments is known in advance
    • Disadvantage: the borrower is protected against any increase in market rates, but does not get the benefit of any decrease in these rates

Possibility of taking up a loan with the interest rate partly variable and partly fixed in order to balance the risk.

Term of the home loan

  • The term can vary depending on the borrower’s choice and his repayment capacity
  • It can also vary depending on the type of property to be financed
  • In the case of variable rates, the term can also be reduced through earlier repayments
  • In Luxembourg, the most common term for a home loan is 20 years
  • Financial institutions increasingly tend to extend the term of home loans to make them more accessible to their clients
  • Some financial institutions propose a term of 20 to 30 years
  • Some banks extend the term of home loans up to 40 years subject to certain special conditions

Opinion of certified customers  !

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