Modernization with the help of a loan

Modernization with the help of a loan

Real estate is very popular as an investment, because this is a secure, “fixed” investment, which even in old age has survived. However, it is always necessary to modernize the home in order to keep it habitable and not to risk depreciation. But modernization costs money. Often this is a very high amount needed, which is not always available on your own account. Due to this, a modernization loan is an ideal option.

Modernization loan: a installment loan

Modernization loan: a installment loan

A modernization loan is an earmarked installment loan.

This is a loan that, as the name implies, is used for the modernization of your own home or condominium. The amount borrowed, plus interest, is to be paid in monthly installments to the bank. This is usually a dedicated loan. This means that the loan amount can only be used for the modernization of the home and for nothing else. One of the benefits of such a dedicated loan is that interest rates are often below the level of a traditional installment loan, saving a lot of money.

Attention: A modernization loan is only given to owners of real estate. Banks usually exclude tenants from a modernization loan, as they may not carry out any structural changes anyway without the landlord’s consent.

In addition, the prospective borrower must meet the usual requirements, which also apply to other installment loans. This means, among other things, that the borrower must be of legal age and use the credit himself. Furthermore, it is important that the main residence and bank details are located within Germany. But also a regular, secure income is needed.

Good to know: Some banks also offer a modernization loan under the name ” Residential Credit “. There is also the possibility to use the credit to equip the house or condominium with new furniture.

Modernization – Definition

Modernization works serve to increase the value of a property.

Modernization work is well defined. In particular, this includes the measures that serve to increase the value of the real estate in general. This includes, for example, repair work in the field of sanitary facilities or electrics. But also the renewal of doors and windows belongs in this area.

Attention: A renovation is not equivalent to a modernization. For example, renovations include painting and wallpapering. These are so-called beauty repairs, which are cheaper than a modernization.



Calculate loan amount exactly, compare offers, check equity and, if necessary, register a mortgage.

Before applying for a modernization loan, it is indispensable to calculate the required sum exactly. The reasons for this are that on the one hand it is necessary to determine the capital requirements and on the other hand a large number of banks do not issue a modernization loan without a so-called restructuring plan. If it is certain which amount is needed, it is advisable to compare the offers of different banks, as they can clearly differentiate one another.

Usually, the term for such a loan is approximately between twelve and 120 monthly installments. In any case, one should always keep in mind the amount of the loan, the duration and the installments, that repayments must be made on a regular basis. However, the longer the maturity, the higher the interest rates. In addition, it is possible that a higher amount of credit on the part of the bank requires a certain amount of equity.

This means that a certain portion of the cost must be paid by itself while the remainder is paid for by the loan. In some cases, the bank also insists on registering a mortgage over a certain amount. However, this also has an advantage: through the mortgage, the amount of the interest rate decreases.

Use state subsidies

Saving through state subsidy programs, such as bank loans.

With a sustainable conversion of your own property, it is possible to use state support measures.

These are loans that are characterized by favorable interest conditions.

Above all, the various promotional programs of bank, are suitable for modernization measures.

Differentiation to mortgage lending

In the case of mortgage lending, a high equity ratio and a mortgage registration are necessary

Under certain circumstances, mortgage lending can also be used for a wide range of renovation work. However, a fairly high equity ratio of up to 40 percent is usually required here. In addition, registering a mortgage is usually common here. In return, favorable interest rates will be charged. Especially in the case of far-reaching renovation measures, construction financing is an option.

Alternative pre-financing through home savings contract

Low interest rates due to low default risk.

If there is a home savings contract that is not yet ready for distribution, this, in combination with a pre-financing loan, can be used as an alternative for a modernization loan. In this case, the bank will negotiate an early payment of the sum in question using the pre-financing loan. In this way, it is only necessary to pay the interest on the loan and continue to serve the Bauspar contract.

As soon as this rationing is ready, the sum repays the loan. Due to the low default risk, borrowers usually benefit from low interest rates.