Important for the renovation loan

A property, whether a house or apartment, gives many people the good feeling of being financially secure – and quite rightly because once the property is paid off, the monthly costs of a home or a condominium fall considerably.

Completely without financial burdens, but it does not work with your own property, because over time, cosmetic repairs that can be a bit more expensive, depending on the extent. Are such measures, but the money is missing or should be used elsewhere, offers a renovation loan.

We’ll show you what to look for in a renovation loan, which makes the loan different from other loans and what alternatives there are.

What is a renovation loan?

What is a renovation loan?


A renovation loan is initially a regular installment loan. This means that you as a borrower get paid the desired loan amount and have to repay this and the interest with the payment of fixed monthly installments.

However, in contrast to consumer credit, the renovation loan is granted almost exclusively earmarked, so you are not allowed to dispose of the money you have paid for, but you must actually use it for the purpose set out in the loan agreement. How specifically this purpose is determined varies from bank to bank; however, it is usually only stipulated that the money must be used to renovate a particular property.

The advantage of this purpose is that the banks reward them with a lower interest rate – a renovation loan is, therefore, cheaper than a regular installment loan. Renovation loans are open to anyone, including tenants, for example, but usually only a real estate owner will be willing to take out a loan to renovate an apartment or house.

Before you think about terms, interest rates, and the like, be sure to identify your capital needs – as accurately as possible.

If you want to renovate a whole house, the costs are of course much higher than if you only want to repair one or two rooms in the house. Also to renovate the bathroom, associated with costs that can easily be in four or even five-digit range.

In order not to end up with too little – or too much – money, you should seek offers from craftsmen or, if you want to do the work yourself, determine the material costs exactly.

Examination by the bank

Examination by the bank

Not all credit institutions accept a simple, verbal justification when it comes to the need for a renovation. Particularly with higher loan amounts, some banks check whether a renovation is actually necessary and the costs are reasonable. The evidence is usually provided by photos or an inspection of the premises and cost estimates for craft services

Afterward, you should check different credit offers. This is where can help you. Simply enter the desired loan amount.

Although the amount of the loan is generally open at the top, the banks usually offer renovation loans up to a maximum of 50,000 or 75,000 euros. The minimum amount is usually 1,000 euros. When considering the loan amount, also note that most banks require collateral, for example in the form of a mortgage, if they are above a certain amount. Up to € 10,000, renovation loans are usually granted unsecured.

That a comparison of the offers is worthwhile, you will quickly recognize the interest rates that are required for each offer.

Negotiate low-interest rates

Negotiate low interest rates


Thanks to the generally low level of interest rates, you can currently get cheap loans from 2.75 to 3.00 percent, but some banks also offer renovation loans at between 8.00 and 10.99 percent.

The exact amount of interest on your loan depends on a number of factors:

  • Your credit rating
  • The loan amount
  • Possible collateral
  • The term

The term can usually be between 12 and 120 months, but is usually 24 to 84 months, depending on the amount of the loan. In exceptional cases, even longer or shorter terms are possible, but these must be negotiated specifically with the bank and also reasonably justified.

Processing fees for private loans – to which the renovation loan belongs – were declared inadmissible in a groundbreaking judgment of the BGH in 2014. In the meantime, the banks have adjusted to this verdict and demand no more fees for renovation loans. However, if you have already entered into a loan agreement that has incurred loan processing fees, you can reclaim these fees from the bank. However, this is only possible for contracts that have been concluded after 2011, older claims are barred by 31.12.2014.

Save on renovation costs

Save on renovation costs


If you want to renovate your house, some rooms or even the bathroom and keep the costs as low as possible, you have several options:

  • Create your own hand
    Of course, the easiest way to save costs is to do your own work. Thus, the costs for the craftsman, which make up the majority of the total costs for many renovation measures, are eliminated. However, the renovation on your own is not suitable for all work, in particular, work in the bathroom you should usually better leave the expert.
  • Procure materials yourself
    If you want to hire a craftsman, make sure you get several offers and compare them. In addition, it is usually cheaper to order the material itself via the Internet than to get it from the craftsman. It is best to arrange this for the first consultation and then have a list of all required materials produced.
  • Use for the tax return
    Do not forget to claim the labor costs of craftsmen in the next tax return! Therefore, make sure that the wages are shown separately on the invoice.


The use of the renovation loan

Since the renovation loan is normally earmarked, it may only be used for renovation work. But what exactly is renovation work? Roughly speaking, these are measures that serve to preserve the value of a property. These generally include:

  • Cosmetic repairs such as wallpapering or painting walls
  • The laying of new floors and the replacement of room doors
  • The replacement of sanitary facilities and the renovation of tiles in the bathroom

The replacement of the kitchen, however, does not count as a renovation, since the kitchen furniture is not an integral part of the apartment or the house. Whether the replacement of external doors and windows is considered a renovation or modernization depends largely on the assessment of the bank. However, as this is a major structural measure, usually accompanied by energy-related refurbishment, it is generally more likely to be considered a modernization. Proof of the appropriate use of the loan amount is usually provided by submitting the manual invoices or purchasing documents.

Funding for renovations

The Kreditanstalt für Wiederaufbau promotes not only the construction of real estate but also the energetic renovation and age-appropriate modernization of homes. However, pure renovation measures are excluded from KfW funding. However, some federal states offer low-interest renovation loans from the country or from certain local authorities, and there are grants for renovation work in some regions.

Alternatives to the renovation loan

If you have decided to carry out renovations, it is also worth thinking about alternatives to the renovation loan. Often it is possible for craft services to settle the costs by installment over a period of time. However, as tradespeople rely on revenue to keep the business running, very few are willing to agree on installment payments that will last beyond twelve months.

In addition, you should of course carefully compare the offer of the craftsman with that of the bank. Since tradespeople usually do not set an interest rate but require fixed monthly amounts, the total cost is best for comparison. Simply compare all the installment payments and compare the result to the total borrowing costs you will find in the bank’s offer.

Another alternative – especially if you want to do the work yourself – is the financing of material costs through a hardware store. Since the competition between the individual providers is very large, many hardware stores offer a zero-percent financing. This means that you only pay the regular purchase price in installments, you will not incur any additional costs.

Of course, this option is always cheaper than a loan from the bank and therefore makes sense even when there is a manual job. If you only finance the labor costs of a renovation loan and the material on the supply of the construction market, you save the interest payments for a good part of the costs. However, you should make sure that there is no residual debt at the end of the financing.