Construction Financing - Fixed Interest Period

  • Erstellt am 2021-08-01 22:39:49

guckuck2

2021-08-10 18:28:32
  • #1
The 15 years is chosen for security. If after 10.5 years the interest rate is lower than in the existing loan, it will be terminated early in order to benefit as quickly as possible from the better condition.
 

Hyponex

2021-08-10 18:40:47
  • #2
whether I have 300k remaining debt after 15 years, or 350k after 10 years, the interest rate risk is almost the same in both cases (16.6% difference in remaining debt)

but to have 16.6% less risk (slightly less remaining debt), yet pay over 50% more in interest in the first 10 years, makes absolutely no economic sense. So as calculated above, paying off 50k more and paying a 21k surcharge for it doesn't really matter...

either I can reduce the risk by 80-90%, i.e. pay off almost everything during the fixed interest period, or not.

and then refinance into a cheaper loan after 10.5 years?
for that, the interest rate would have to be below 1.4% for it to even make sense, otherwise you still throw 21k out the window...

one should consider what is more likely in 10 years?
interest rates below 1.43% or above?

if you notice that interest rates are rising (this does not happen overnight, but is a slow creeping process) then you can already react in 6-7-8-9 years, and directly arrange a forward loan for the period 11-20 or even 11-25 years.
I already mentioned the advantages earlier.
 

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