Building savings contract and Wohnriester - Where is the catch here?

So I had a conversation yesterday with someone from Wüstenrot who told me about a construct that, in my eyes, is too good to be true.

Your salesperson either kept the uncomfortable facts from you, or sugarcoated them so nicely that you did not reproduce the whole construct here.

In short, I was offered to take out a home savings contract and a Wohnriester contract.
The home savings contract would have a minimal initial fee of 500,- which corresponds to 1% of the home savings amount of €50,000. Furthermore, there would be no savings obligation.
The Riester contract I would have to fund with €60 annually to "qualify for the subsidy" (quote from the advisor).

A Wohnriester is a home savings contract. These are not two different things. €60 is indeed the minimum contribution, but with that at most non-working partners can claim the full subsidy.

Upon conclusion of the home savings contract, a subsequent loan with a 30-year term would then be financed at 1.25%.

I understand this as if I "buy" a loan with a 30-year term and the same fixed interest of 1.25% by paying the €500 initial fee for the home savings contract.

A home savings contract always consists of two phases: the savings phase, and the loan phase. The loan phase is only reached when the home savings contract is ready for allocation (depending on the Bausparkasse). All Bausparkassen offer interest-only pre-financing. That means you only pay the interest until allocation; at the same time, the actual home savings contract is being saved up. However, this pre-financing is usually possible at a slightly higher interest rate than the home savings contract interest.

1.25% is not 1.25%; banks and brokers usually calculate/advertise with the effective interest rate. Bauspar contracts use the nominal interest rate; meaning 1.25% can turn into 1.75%-2.8% (effective interest rate after allocation).

And the total effective rate over the whole construct (i.e. pre-financing) is not just interest 1 + interest 2 (and their average) but even more complicated to calculate. Only then could it be compared with a classic annuity loan for the same interest rate fix.

But yes, you can design roughly 30 years of interest security with such a construct; but not at an effective 1.25%....

At the moment it looks like your salesperson just wants to pocket the commission and tie you to the Bausparkasse.

As just wrote, a home savings contract construct can make sense because, all in all, it can be cheaper for the individual situation, but you are still far from being able to actually assess this.

By the way, Wohnriester or the purchase of real estate with it has quite different restrictions (regarding sale / rental / etc.); and eventually the topic of the Wohnförderkonto (deferred taxation) comes into play.

There are constellations where it pays off (because of tax and subsidy), but this is very individual (e.g. several children etc).

Wohnriester was also promoted to us by every second person. The appeal lies in good conditions and lower installments if you convert an existing Riester contract. However, this naturally means that the pension component that you actually wanted to create with it falls away.

I decided against it because of the deferred taxation (I don’t want to pay €20,000 in taxes at the start of retirement) and the low flexibility. Although I don’t plan to, a change of job location is quite possible. I want to have the chance to sell the house without immediately purchasing a new property.

(I don't want to pay 20,000€ in taxes at the start of retirement

You don't have to do that either. The housing subsidy account can be spread out until you are 85. It strongly depends on your personal situation at that time whether the "lump sum" with a discount or the annual allocation is the better option.

. but that of course means losing the retirement component that you actually wanted to create with it.

Of course, when comparing with and without Riester, you pay off much faster, because the money that goes into the Riester pension, the subsidy bonuses, as well as the tax benefits is used for repayment (and not spent on something else), which significantly accelerates repayment.

We have set ourselves the goal to continue the annual repayment amount at least until 63 (meaning if components drop out, consistently setting aside the difference).

That leaves plenty to comfortably pay the taxes. (But the housing subsidy account stuff is often something that gets overlooked in advice/consideration)

I want to speak up in favor of Wohnriester.

My wife has a 450 Euro job and [EI Riester] counts two children for her.

In the end, with little effort (240 Euro p.a.), we collect quite a lot of subsidies (754 Euro p.a.). On top of that, there are some meager interest earnings (by the way, tax-free)... honestly... it can't be taxed so heavily later on that it wouldn't be worthwhile. So, at some point shortly before retirement, withdraw, settle the rest, pay a one-time lump sum tax flat rate, and the matter is done.

Blessed is the one who has many children or plans to have them.

However, I would never integrate something like this as a compulsory module in financing, but rather run it loosely on the side.

The withdrawal as a whole is also recorded as a sum in the housing promotion account, right?

Wrong answer deleted. Correction will follow. Tonight or something.