# The financial question: Trouble with the effective interest

Remain hidden the true cost of many loans, because the legislature was going sloppy and the gaps in the regulation do not close.

The interest rates for home loans are in the cellar. Loans with a duration of ten years cost right now nominally 2.5 to 3 percent per year. A mortgage with 15 years fixed interest rate may be obtained for an annual nominal rate of 3 to 3.5 percent. These are fantastic conditions, so it is obvious to realize the dream of owning a home as soon as possible into action. Help in choosing the best loan is to offer the new Consumer Credit Directive. It has been applicable since 11 June 2010 and is celebrated by the Federal Ministry of Justice as a step forward for consumer protection. Who digs through mountains of paper, but soon realize that the new law for individuals standstill or regression means. The following examples make clear.

The financial question: Investors should bury hopes of high-interest rates

A builder needs 150,000 euros. The fixed interest rate should be ten years. The currently represents a borrowing rate of 3 percent per year. The initial redemption is 1 percent. This results in monthly installments of 500 euros. The remaining debt in ten years, if the interest and redemption are charged monthly, will be 132,532 euros. In order for the credit according to the accepted laws of mathematical finance costs 3.041596 percent per year, and the number – rounded decimal rounded to two places – had to call the lender in the past. In this specification, the consumer can not leave since of 2010.

Plenty of room for manipulation

The legislator wants for any reason whatsoever that the money lenders call an effective interest rate for the entire term. This leads in practice to severe problems because the lender must assume a fictional connection rate after the fixed interest rate. There are no rules so that the “manipulation” floodgates are open. In a subsequent rate of 3 percent of the effective rate remains at 3.04 percent. Climb the connection rate to 3.5 percent per year, 3.33 percent coming out, and the annual Prolongationszins drops to 2.5 percent, to 2.77 percent are called.

In the competition among banks, much imagination is required to guess the march towards the lender. They calculate with low connection rates so that the effective interest rate below the initial nominal interest rate slips. For this nonsense, the banks are not responsible. This is on the cap of the legislature, and the new feature means that consumers can forget the effective interest rate. He is no longer usable with such requirements.

The savings banks again demonstrate the courage to leave gaps

The best proof is the view of reality. The cooperative banks usually count on the initial nominal interest rate further. Equally, process large banks and mortgage companies. Only the savings banks have again developed the courage to leave gaps. You have the infamous discount splitting in the past – used for optical brightening of the effective interest rate – the division of paid losses and processing fees to different maturities. Today they use their terms and conditions. In the small print, it says for years and years that loans and credits to be extended after the expiry of fixed interest at variable rates. Consequently, the financial institutions assume today’s rates for the period after the extension.

Today’s interest rates are about 2 percent so that the savings banks call effective cost of 2.52 percent. The result is, of course, to say it again, no malicious challenge of the savings banks, but gross negligence of the legislator. The consumer pays for the fixed-interest, not 2.5 percent but 3 percent. Those who do not believe must establish repayment schedules. The outstanding balance of the savings will be in ten years at 132,532 euros. If the interest rate actually amounted to only 2.5 percent, a residual debt of 124,324 euros would come out. These are 8208 euros less. Therefore, lawyers should employ on occasion with the question of who is liable for the misleading of consumers.