As a borrower in Austria, you basically have two options when it comes to financing with installments (repayment loans):
Repayment at a flat rate: On the one hand through the so-called annuity at a flat rate, where you repay the loan amount in constant monthly installments. The interest portion of your loan installment is higher at the beginning and you only pay off a small part of the loan debt. Over time, this ratio changes increasingly, in the end the repayment rate exceeds the interest portion of your monthly loan rate very significantly.
The monthly repayment amount therefore remains constant and only changes in the case of variable interest rates if the bank should change the reference interest rate on which the financing is based.
Such annuity loans are the most common form of real estate financing in Austria, but are also often used for other forms of credit.
Redemption by capital rate: The alternative to the flat rate for loan financing is the so-called capital rate. You repay your loan with a fixed monthly amount and also pay the interest to the bank. A lump sum is more expensive than the lump sum at the beginning of the term, but it decreases over the years due to falling residual debt and interest payments.
Annuity Loans vs. final mortgage loan – the differences
A further, less well-known type of loan can come into play when it comes to construction financing, which usually involves large sums and runs for many years and decades: the so-called mortgage loan.
Such a loan is ultimately called because you do not have to repay it continuously, but as a borrower you can ultimately pay off your debts in a single installment. This can be a sensible alternative for you in special circumstances, but it also harbors a number of dangers.
Because while loans are usually repaid by annuity at a constant monthly rate with an increasing repayment component and ever smaller interest payments over the term, you as a borrower only pay interest to the bank for a final loan over the entire period. Since the remaining debt is not reduced here, your interest payments always remain high.
The advantage here – more financial flexibility
Without paying off, more money is left in the cash register than with the annuity loan. Borrowers generally like to invest this in other investment products such as life insurance, home loan contracts or savings plans – in order to ultimately repay the entire loan amount with the capital saved.
The main disadvantage – the high risk: Because the remaining debt remains and whether the saved capital is sufficient to repay it is questionable. Especially in times of low interest rates, life insurance policies or other savings products only yield meager profits. If a financial hole remains at the end, this must – in addition to the interest already paid – be compensated with expensive follow-up financing.
More expensive than an annuity loan
In addition to the consistently high interest payments due to the lack of repayments, banks generally charge significantly higher loan interest rates for mortgage loans than for a comparable loan with annuity. In addition, the administrative expenses are quite high, since in addition to the loan, these are often also incurred for completed savings products.
Tip: A final loan is only interesting if you can count on a sufficient and reliable amount of money in the future – for example through savings products with good interest rates and insurance policies from previous years, or with a legacy. Annuity loans with low interest rates and high initial repayments are the much cheaper alternative in the long run.
You can find help with the search and calculation of your mortgage lending as well as information and contact to the provider in our mortgage lending comparison.
Overview of advantages and disadvantages
|Annuity loan||Final loan|
|Higher monthly rate and total charge||Financial burden during the term is low|
|Increasing share of repayment during the term||No repayment during the entire term|
|Very low market interest rates at the moment||Higher interest rates compared to the annuity loan|
|Lower fixed residual debt, predictable follow-up financing||Constant residual debt, amount of return on capital saved cannot be predicted|
|In addition, there is usually little financial leeway||Greater financial flexibility|
|No or low costs and fees||Mostly high administration costs|
Annuity refers to a regular, constant payment, which is made up of interest and payment.
In the case of an annuity loan, the ratio of the interest portion to the redemption portion changes during the term. With increasing repayment and decreasing interest payments, the regular monthly rate always remains the same (constant annuity).
In the case of a repayment loan, on the other hand, the repayment amount always remains the same, but the interest burden decreases during the term due to the decreasing residual debt (variable annuity).
Repayment loan: With the repayment loan, the financing amount is repaid in monthly installments. Even before the deal is closed, the loan amount plus interest is divided into monthly installments over the term. The fixed monthly loan rate changes only with a variable interest rate, in accordance with the development of the reference interest rate of the loan.