Construction financing with a low fixed rate

Hello dear forum community!

We are in the final stages of our house planning and I am looking for opinions regarding the fixed interest period. We have received some (in my eyes) attractive offers from Interhyp, and an appointment with the house bank (Sparkasse) is still pending.

Briefly about our building project:
We currently bring: land (65k) + equity (50k), from which we want to pay ancillary construction costs and material costs for the self-performed work
Financing requirement for a single-family house (140 sqm + basement): 310,000 euros

About our situation:
My husband (31) currently earns about 1900 net without bonuses, I (24) am currently on maternity leave and will earn about 1400 net in 2018 after one year of parental leave working 30 hours/week. According to the current planning, repayment will also probably begin around that time when the interest-free period after drawdown has expired. We recently moved in with my parents and live there rent-free until the house is finished.

Looking at the entire term of the loan, we are currently at the point where the financial situation looks worst. That’s why we decided to set a low starting rate of about 900 euros, which we can manage well despite receiving parental allowance/part-time/possibly a second child. Since my husband’s career prospects look very good, this will probably change in the long run – we just can’t count on that right now.

Therefore, it was important for us to find a loan offer with a low base rate that we can increase later with special repayments or even a repayment rate change when the situation improves. For this, we are accepting a high residual debt and long terms for now. Interhyp has made us several offers, of which I find three very interesting.

Loan amount for all: 310,000 euros

Financing offer 1: Sparda Nürnberg
Fixed interest period: 15 years
Nominal interest rate: 1.07%
Effective annual interest rate: 1.09%
Repayment rate: 2.41%
Monthly rate: 899 euros
Special repayments: up to 5% (15,500 euros) once a year
Repayment change: possible twice between 2% and 5%
Residual debt: 197,000 euros

Financing offer 2: PSD Nürnberg
Fixed interest period: 20 years
Nominal interest rate: 1.55%
Effective annual interest rate: 1.58%
Repayment rate: 2.00%
Monthly rate: 917.08 euros
Special repayments: up to 5% (15,500 euros) once a year
Repayment change: possible twice between 2% and 5%
Residual debt: 173,000 euros

Financing offer 3: AXA
Fixed interest period: 20 years
Nominal interest rate: 1.60%
Effective annual interest rate: 1.61%
Repayment rate: 1.88%
Monthly rate: 899 euros
Special repayments: up to 5% (15,500 euros) once a year
Repayment change: possible once a year between 1% and 5%
Residual debt: 180,000 euros

So, now I simply ask for your opinion and assessment. Each offer has its appeal – with 15 years, the low interest rates tempt, on the other hand I also find 20 years fixed interest very reassuring. And the AXA would offer the greatest flexibility there at slightly higher interest rates.

Many thanks in advance!

I would definitely go for the Sparda offer. The interest rate is great. Compared to the AXA offer, the remaining debt is only about 10% higher - but 5 years earlier. In other words, with AXA you face almost the same potential "problems" after the fixed interest period expires as with the Sparda option - just 5 years later.

I would be more concerned about the usual other worries: Is the rate not too high for your income? Have you considered everything in the calculation and planned reserves?

The rate is generally still within a manageable range (under 1/3 of the net income). Whether it is manageable for you personally, you have to know - keep a household budget for a while.

Ultimately, that wasn't really your question, but rather which credit offer receives the most approval here.

I personally(!) would take the AXA offer. Long fixed interest period, good interest rate, and very high flexibility due to the annual right to change the repayment rate. Whether the option twice offered by the other offers is enough for you personally simply nobody knows (unplanned offspring, illness, ...).

The remaining debt and the associated risk would be too high for me in all 3 cases.

Flexibility is paid for in the form of interest. You can see that at AXA. You should think about when family planning is completed and you go back to work and thus also increase the installment. In reality, it usually looks different, you get used to the installment, want to manage everything through the special repayment, and at the end of the day neither special repayments are regularly made nor is the installment increased. Therefore, it is better to accept a 20-year offer.

that's why it's better to accept a 20-year offer

Then she has a remaining debt of €180,000 instead of €197,000. That is hardly a difference in risk, only in the second case she has already paid for 5 years longer (€54,000).

If you expect incomes to rise, I would choose 15 years. If you expect real incomes to fall, I would not build.