Building society loan or annuity loan?

  • Erstellt am 2020-03-26 16:09:05

Alkaral

2020-03-26 16:09:05
  • #1
Hello everyone,
we are planning our single-family house; the building application was submitted the day before yesterday.
With an equity contribution of 350k, we still need about 1 million.

We have sent Hüttig & Rompf and the Baugeld Spezialisten to find us a corresponding annuity loan with a fixed interest rate of 20 years.

My father prefers a home savings loan (Bauspardarlehen) for a partial amount of 345k for the following reasons:
- No new land charge needs to be registered (saving notary and land registry fees), as we could secure this via another multi-family house (where LBS already holds the first rank of the land charge).
- If a bank were to redeem the available part of the existing land charge for securing the annuity loan (A-D), it would have to be satisfied with the second rank since the first rank is already occupied by LBS. It is very questionable whether the bank would agree to that.
- Undoubtedly, the drawback of the home savings loan (B-D) is the contract fee for the home savings contracts; it amounts to 1.1% of the home savings amount, i.e., €3,795 for a total amount of €345,000.
- If the total amount in the B-D is divided into 3 partial contracts (e.g., €80,000 + €120,000 + €145,000 = €345,000), each immediate loan has an interest rate of 0.75% with a term of 10 years + 4 months. After that, allocation is usually reached, and for the then effective home savings loan, an interest rate of 1.50% applies over a further period of approx. 12 years + 9 months, i.e., until the complete (!) repayment of the loans is valid.
- For the A-D, the fixed interest rate for a term of 20 years is 1.0%. Regarding the interest amount, the A-D is somewhat advantageous over a 20-year period. In terms of the level of repayment or savings rates, this advantage is almost negligible. What matters most are the amount and duration of the loan repayment.
- The main advantage of the B-D is that all conditions are set until the complete repayment of the loans. For the A-D, this is only fixed for 20 years. After 20 years, the remaining debt—depending on the currently agreed repayment rate—can still be very high, and the newly agreed conditions can become quite high.
- The biggest advantage of the B-D, however, is flexibility: for example, during the savings phase, the regular monthly savings amount of €3 per €1,000 home savings amount can be reduced to the minimum savings amount of €2 per €1,000 home savings amount. This means that it takes longer to reach allocation, and the loan conditions must be adjusted after 10 years + 4 months according to the current market situation. Nevertheless, this is advantageous in case of financial bottlenecks. The A-D does not offer this flexibility. Here, the same annuity (interest + repayment rate) must be paid throughout the entire loan term.
- The flexibility also applies to the repayment phase. You can make special repayments at any time or even repay the entire remaining debt in one lump sum. This is a great advantage, for example, in case of a possible sale of the property, as no early repayment penalty must be paid. Another advantage: if, for example, the monthly repayment rate (€4 per €1,000 home savings amount) is too high, a debt restructuring can be carried out so that a new annuity loan in the amount of the remaining debt (!) with lower monthly rates is taken out, and thus the remaining debt of the home savings loan is redeemed in one go.
- With a B-D, you are usually finished after approx. 22 years. I will then be about 67 years old and probably in the last years of my professional life. This time for loan repayment would fit well because, as a retiree, I will no longer have a high monthly income. Of course, the loan repayment rate must also be higher to be finished in approx. 22 years. With an A-D, you can, of course, choose lower repayment rates depending on the repayment rate. However, then you will still be making repayments as a retiree.
- With an A-D, the repayment rate must be at least 3.0% to be finished in approx. 25-30 years (have your loan expert calculate that for you). For an amount of €345,000, you would then have to pay a monthly rate of 4% (1% interest + 3% repayment), i.e., €1,150 for the annuity loan. This amount will be debited every month for at least 20 years.
- For the B-D, the monthly rate in the first 10 years (savings phase) is €215.63 interest (interest rate: 0.75%) + €1,035 savings (€3 per €1,000 home savings amount) = €1,251. This option is thus about €100 per month above option A-D. If only the minimum savings amount is paid, the total monthly amount is only €215.63 (interest) + €690 (minimum savings) = €906, i.e., approx. €240 less than option A-D.
- In the period between 10 and 20 years, the monthly payment for the A-D is still €1,150. However, for the B-D, the monthly payment is €1,380 (€4 per €1,000 home savings amount), i.e., €230 more than the A-D.

What do you think about this? What would you do?

Best regards and many thanks
 

nordanney

2020-03-26 18:07:49
  • #2
Too much text with way too many numbers. I'm out...
 

HilfeHilfe

2020-03-26 21:16:02
  • #3
Too much text, too high amounts. Hüttig & Rompf and Rumpelstilzchen will take care of it.
 

Lumpi_LE

2020-03-26 21:23:17
  • #4
Yes, maybe summarize a bit... With the current interest rates and then the amounts, everything except loans is nonsense.
 

Alkaral

2020-03-27 11:54:43
  • #5
Great, that is enough as a statement for me, I see it the same way.

Best regards and many thanks.
 

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