CHF loan, annuity loan or amortized loan

Dear people

We will finance a new construction in Swiss francs at a German bank in Germany (we are cross-border commuters!) Now we have obtained two offers from two banks and have no idea which offer we should choose.

Property costs approx. 300,000.00 EUR
Equity capital EUR 36,000 EUR
Loan thus 264,000 EUR

Offer 1:
One bank wants to sell us an amortizing loan with approx. 1.9% or 2% interest and a repayment rate of 3%, term 1 year. The interest rate is contractually set anew every year (there is a risk here because the interest rates could, of course, rise every year).

Offer 2:
The other bank, however, swears by an annuity loan with a term of 10 years fixed at 3.35% interest and a repayment rate of 2%. Now we are totally unsure which loan is best, can someone give us good advice here? Clearly, we have greater risks with the amortizing loan, but the low interest rate of 2% is very tempting.

Thanks in advance for your tips and advice!!

Regards, Iberia

Hi,

what will you do if the interest rate rises to 5%?
Can you still continue to pay the loan then?

Regards

Hello,

in addition to the currency risk, you also have the interest rate risk. A bit risky. I would choose the annuity loan and fix it for 10 years. In addition to the 2% repayment, you also have the right to make 5% special repayments annually. After 10 years, quite a bit will have been paid off. No one knows where interest rates will go. Everyone is certain that they will rise. I don't believe they will reach double digits. But an interest rate level of 6-7% is not that unrealistic now.

Best regards
Ille1975

Hi,

Stay away from foreign currency loans! Always take out loans in the local currency. How badly this can backfire can be seen in Hungary:

I wouldn’t count on a rescue like in Hungary – but in Hungary, no one could service their foreign currency loans anymore, hence the government intervention. The euro is also depreciating because of the bank bailouts (not as strongly as the forint), so your loan is constantly getting more expensive.

Otherwise, I would choose the annuity loan.

Regards,
Axel

Hello!

One option would also be to split the loan. Let's say 75% fixed for 10 or 15 years and the remaining 25% with a variable interest rate. I also considered this option for my financing at first. However, I only wanted to fix the smaller part for 5 years. You can make the overall financing a bit cheaper, but you bring in a certain risk. However, I then decided against it. It is a matter of discretion how much risk it is worth to you to pay lower installments. If there are enough reserves in the background, you can certainly go this route.
We keep enough reserves back. I have a wife and child. I did not go into [ihn].

Best regards