Construction costs: Is home construction financing really that realistic?

Now the follow-up questions:
How often and with what advance notice can one freely change the repayment within the range of 1-5%?

3x (I had also written this); no advance notice, implemented with the next installment

The special repayment can be chosen every year at will and without effect on the following year. Is that also the case with the repayment reduction? That’s exactly what I mean by "do you want to become an expert in the fine print?"

What “fine print”? The effect of changing the repayment is solely a lower repayment and lower installment or solely a higher repayment and higher installment. That’s it – but that’s exactly what is intended. There are “only” four or five lines with the option. No further conditions or fine print. No conditions or dependencies.

Rationally considered, the bank must price the second case higher. Therefore the theoretical statement: As far as the extent of flexibility is identical (only in the opposite direction), the repayment suspension must be priced higher than the special repayment.

No, you forget that with a lower repayment the interest payment and thus also the margin as a sum over the term is higher. The risk is already priced in with the initial disbursement. Therefore we are happy about repayment reductions, as they also increase the bank’s profit! And that at unchanged risk. Crazy...
Accordingly, the pricing also fits: higher price for special repayments, as the bank’s profit is guaranteed to decrease. Lower price for repayment changes, as the bank’s profit tends to increase (of course there are also repayment increases, but to a lesser extent).
We model our prices based on experience in the utilization of the options. Both options (special repayment and repayment change) are actually overvalued in reality, since most customers pay for the options but do not use them.

But nevertheless, the concrete design (when, how often, under what conditions, necessary requirements, etc.) of flexible repayment in practice would be of great interest to me. Especially in times of zero interest, this seemed to me to be an extremely unattractive option for the bank.

Of course, I cannot/may not name concrete figures. Assume that in the case of a repayment change, it is a (very) small two-digit percentage. Especially in times of zero interest with a high repayment requirement, it is gladly used to be prepared for possible income reductions. And since we work exclusively on the capital market and exactly 0 with deposits, everything can be nicely refinanced. We have never financed harakiri.

Of course, other questions now come into play, such as the probability with which the respective options are chosen. The special repayment is probably chosen more often in tighter financings, whereas the repayment reduction is presumably only granted if the bank already has sufficient collateral.

In fact, the motivations span the entire spectrum of possibilities. Almost everyone likes special repayments – but they are actually used more when liquidity is really good. Usually, for the average person, other things are more important (whether it's consumption or purchasing things for the house). Repayment changes mainly occur with customers who are still betting on the future. Young people who currently cannot repay much or a customer group who, simply due to their life situation (they actually want to repay quickly but want to be secured in case of professional issues or children – they actually want to repay quickly but cannot at the moment and want to increase the regular repayment after the next career steps, because they know that only forced savings really work and voluntary special repayments are rather the exception).

Then the flexibility of changing the repayment is lower. I can use the special repayment 10 times (assumption 10 years fixed interest), but the repayment change only 3 times. Especially with several children and an enormous rate of 3500, this is hardly sufficient if something really happens.

Regarding refinancing: Regardless of whether it is special repayment or repayment change and regardless of whether I refinance as a bank with matching maturities (Pfandbriefe) or not (deposits), as soon as either special repayment or repayment change is used, I have a cash flow shift and in the first case I am no longer congruent (because the refinancing then lasts 25 or 35 years instead of 30). As a bank, I then either have reinvestment risk (special repayment) from surplus liquidity or I have to obtain fresh liquidity (repayment suspension). In both cases, at contract conclusion it cannot be predicted whether the option is then (virtually) in the money or not; that is solely a question of interest rate development. Exceptions are of course constructs like MBS, but in the end the bank only generates commission income there and the interest rate risk is borne by the investor.

Otherwise, many thanks for the insights from practice! Always very interesting.

But back to the concrete case: I would still stick to the usual rate (2xxx) and invest the rest in the ETF. If optionalities are needed, then rather that of a generous special repayment (even if more expensive), because an option that only helps me in 3 years, maybe sufficient in case of unemployment, but not in case of structural changes (children).

Then the flexibility of the repayment switch is lower. I can use the additional repayment 10 times (assuming 10 years fixed interest rate), but the repayment switch only 3 times. Especially with multiple children and an enormous rate of 3500, that is hardly sufficient if something really happens.

Every 3 years is more than enough. In this case, you would probably reduce it once when the first child arrives and raise it again 3-5 years later when both are in the new normal work schedule.
The crucial difference between additional repayment and repayment switch is the starting point. If you start with a high repayment, the money is gone at the beginning of the month, you automatically repay a lot and have to take action to reduce the repayments. With additional repayment, you have to actively save and repay each time.

Then the flexibility of the repayment change is lower.

I don't see it that way. Because you are comparing apples to oranges. I’ll provoke a bit and say that the flexibility of the special repayment is lower. This leads exclusively to a reduction of the term/debt. With the repayment change, you can both shorten and extend the financing term. So two completely different products. And now back to the thread ;-)