Construction financing - Is the bank loan / construction loan being negotiated?

Hello everyone,

I have some fundamental questions about construction financing. I would like to illustrate this with a concrete example:

Financing requirement: 360,000 €

Financing components:

[*]Bank loan: 260,000 € (15 years, 3.17%, 2.5% repayment, remaining debt: 136,000 €)
[*]KFW 124: 50,000 € (10 years, 2.4%, 1.91% repayment, remaining debt: 40,000 €)
[*]KfW 153: 50,000 € (10 years, 1.9%, 2.59% repayment, remaining debt: 37,000 €)

Points 2 & 3 are fixed, meaning there is no room for negotiation there. But how does it look with the bank loan? I often read that construction loans are frequently negotiated. Can I imagine it like at a car dealership? Unfortunately, I have no experience in this area . The above financing example is the result of an Interhyp advisor.

Furthermore, I would be interested in how you assess the duration of the fixed interest period? Opinions also differ significantly on this... One advisor recommended limiting the fixed interest period to 10 years to repay quickly through the lower interest rate. Others, on the other hand, suggest directly 20 years or more. Although I also keep hearing that interest rates will have to rise again in the long term... Good advice is probably expensive here. Nevertheless, I would appreciate your opinion!

Best regards,
Thomas

The surcharge on the interest rate for a 15-year fixed interest period compared to 10 years is usually quite high. The jump to 20 years is often significantly smaller. So I would say either 10 years or directly 20. But of course it depends on the offers you get.

At Ing-Diba, the surcharge is 0.60% ... in my opinion, that's not worth it. Compared to a 15-year fixed interest period, you are better off with 10 years + 5 years fixed interest at the follow-up financing, even if the interest rate doubles during the follow-up financing (despite better conditions).

I was able to take action in parts. For one part of the loan that is fixed for 10 years. From 2.63% effective to 2.50% effective. But other factors also played a role. For example, moving the salary account to the lender, insurance...

Whether it is mathematically worthwhile then needs to be considered in detail. In our case, it was.

Don’t you have much equity?
I already locked in your interest rate half a year ago for 20 years at 3.2% effective. And that was with 6 months forward. (Our loan will be free starting next month and we signed the contracts at the beginning of the year.)

We also finance with a local institution, where you can still shake hands personally.

Thank you for the answers!

Our equity is €40,000. Maybe that's the reason? Regarding the interest rate of the bank loan.

Hello

well, those are 10% or rather the ancillary construction costs. So you won't be able to negotiate much there. Rather consult an intermediary and hope that they approach a bank that has better conditions

Whether you can negotiate certainly depends on the bank and also on your creditworthiness. With only a small amount of equity, it will probably look worse. But it is definitely worth a try. You will see if something works out.

Regarding the interest rate lock-in, there are various opinions. I think it always depends on how your financing is structured and what your creditworthiness looks like. Those who finance on a tight budget or don’t have much leeway are naturally well advised to choose a longer interest rate lock-in. But for those who still have reserves, expect one or another special repayment, etc., and wouldn’t be too bothered if the interest rate rises a bit, a shorter interest rate lock-in is definitely worth considering. I’m not a big fan of statements like: "At this interest rate level, one should make the interest rate lock-in as long as possible," because I think it always depends on the personal situation.

In the end, we decided on a middle ground with a 15-year interest rate lock-in. We probably wouldn’t have any concerns with 10 years either, but since I (as a woman ) have a very strong need for security, 15 years were a good compromise for us. To really be able to sleep peacefully, this is only possible if the appropriate reserves are available. In the end, of course, everyone has to decide for themselves how much risk they are willing to take.