Some mortgages for young people, especially those from the past, have relatively high interest rates. Even a few years back, it was common for a 5% mortgage for young people to be interest-free. Sometimes people come to me with a request to refinance such a mortgage. It only pays off exceptionally.
Lower interest = lower installment
This is simple mathematics. Of course, if you take a youth mortgage now, lower interest rates will also give you a lower monthly installment. At the moment (October 2014) in the case of a mortgage for young people it is possible to get interest in the best cases from 3 to 3.5% pa
If you deduct the bank’s contribution (-1%) and the state contribution (-2%), you get interest up to 0.5% pa The rates are much higher for older youth mortgages. Even my wife and I have a mortgage for young people for one property at 4.89% pa for 5 years of fixation. This mortgage is from 2011. It’s no fame if I compare it to today’s interest.
After deducting the state contribution, we are 1.89% pa, which sounds a little better. Although interest on this mortgage is still very high for today’s conditions, its refinancing is not worth it.
Beware of fees and state contribution
The bank and the state of the youth mortgage subsidize the interest rate. The benefit for this mortgage is for 5 years. The reason why in most cases it is not worth refinancing the mortgage for young people is the fees and state contribution.
Restrictions and options for the first 5 years:
- You can pay out at any time a mortgage for young people free of charge during 5 years. This is a huge advantage. The current fee for repayment of a mortgage without a state contribution outside the fixation period is 5%, which is € 2,500 for a € 50,000 mortgage.
- During the first 4 years of repayment of a youth mortgage, you must return the entire state contribution, including the bank’s contribution. For example, it is € 50,000 mortgage with an interest of 3.5%, 30 years and full use of the state contribution, this is € 2,697. This amount needs to be returned. In particular, refinancing is not worth it.
Early repayment of a mortgage to young people when selling a property
Selling a property is the most common reason for repaying a youth mortgage for a period of 4 years. At that time, you will not be able to refund the state contribution and the bank contribution.
When buying an apartment for a young mortgage, consider carefully whether the size and other parameters of the property will suit the next 5 years. If you already have to sell the apartment, so that you can repay the mortgage after 4 years of repayment so that you do not have to return the state contribution.
Refinancing the mortgage for young people is only worthwhile if you have a very high interest rate, you repay the mortgage for more than 4 years (you do not have to return the state contribution) and avoid the early repayment fee.
Contact your financial intermediary to plan your home, choose and set up a mortgage for young people.