To explain a subordinated loan, or also: a subordinated loan, we first go a little further: If you want to buy a property, you usually go to a bank and borrow money as part of a construction loan.
In return for the bank providing you with a comparatively high sum, you pay interest, but the bank would like to receive even more security. In order to give her this security, she is entered in the land register as a creditor with a land charge equal to the amount of your financing. This gives them a so-called “real right to sell” the property, and that is the security mentioned: should you ever become insolvent and your monthly installment payments can no longer be paid, the bank has the right to sell the property for you Getting money back. As a rule, she then initiates a forced auction.
What is the difference between first-class financing and subordinated financing?
When you receive your first mortgage, the bank is the first creditor to be entered in the land register. Our land register calculator shows you the costs involved. For example, suppose you want to continue to finance your home while the first one is still running. For example, because you still want to finance an extension. Then the bank that grants you the second mortgage is subordinated to your first bank in the land register. Therefore one speaks of a subordinated loan or subordinated financing.
The second bank also receives security for the money lent through the entry in the land register. If you subsequently become insolvent, this means: First, the first bank may put its real property right into practice, and then the second bank. Because it cannot be said with certainty whether, for example, something remains for the second bank after the foreclosure sale, subordinated financing is associated with greater uncertainty for them. For this reason, subordinated loans are usually more expensive than first-rate financing. The second bank offsets its risk by raising interest rates.
What are the special features of a subordinated loan?
Certain rules apply to subordinated loans. For one thing, the preload must not be higher than the one you want to absorb. On the other hand, the residual debt from the first financing and the new loan amount from the second financing must not exceed the loan maturity of 80 percent. The loan-to-value ratio shows the relationship between the value of the property and the amount of all loans with which the property is encumbered.
Here is another example:
Your property has an object value of 250,000 dollars, then the remaining debt of your first financing and the newly taken up amount of the second financing may not together amount to more than 200,000 dollars. The cultivation that you are planning with the second loan may, however, increase the value of the property and thereby increase this limit. If your property were no longer worth 250,000 but perhaps 280,000 dollars after the extension, the limit for both financing would be 224,000 dollars, which would allow you to raise 24,000 dollars more. It is at the discretion of the second bank to assess whether and to what extent the property value increases as a result of the planned measures.
There are also other variants with which you can give yourself more space for modernization or extensions: for example, the first financing can be increased again if you have already paid part of the debt. Simply speak to our on-site consultants and ask which way is cheaper. The building finance specialists is familiar with the special features of subordinated loans and will show you in person the possible alternatives to subordinated financing.