End of fixed interest period 2027 - increase repayment or other options?

Good day,

at the time, we took out two loans, which expire in 2027 and 2028 respectively. In detail:

CURRENT
Bank	Loan amount	Nominal interest rate	Special repayment option	Current repayment	Monthly installment	End of fixed interest period	Outstanding balance
Bank 1	€150,000.00	1.72%	5% (€7,500)	1.80%	€440.00	June 27	€120,561.00
Bank 2	€200,000.00	1.30%	5% (€10,000)	2.00%	€550.00	April 28	€157,300.00

Due to the increased interest rates, we are currently very uncertain about what we should do best. Of course, we would prefer to reduce the outstanding balance so that after the fixed interest period there is no shock for us in the form of very high monthly installments.

We could still manage about €600 per month to repay or invest or other options? We have not yet made use of the special repayment options.

I am therefore looking forward to receiving one or the other useful tip from you experts.

Malte

How much risk are you willing to take?
[Day money] currently yields about 2%. On the stock market, the long-term average is higher; the MSCI World has returned an average of 9% annually since 1975.

You can also make special repayments, which is the safest option.

Or bet on interest rates going down again. They already are, from 4.2 to 3.6 for 15-year fixed rates in the last 2 months.

Go see an advisor and have them calculate what your follow-up loan would look like if it were due today.
Always remember: at that time, you won’t have 20% equity anymore, but 50, 60, 70%. That alone already brings better conditions.

5 years is quite a short time for the stock market, you should only do that if you are prepared not to touch the portfolio in case of doubt. I don’t really see that with you. The outstanding debt is not huge, but you also started small. Therefore, I would try to reduce the outstanding debt.
A special repayment has the advantage that the money is definitely used for that. No matter what happens later. Alternatively, you could invest in fixed deposits, for that you need to get at least 2.3% (loan 1) or 1.75% (loan 2) interest before taxes. That is currently possible. On the other hand, with the sums being considered, the absolute differences are rather manageable and maybe one ends up tapping into the savings pot after all. Therefore, I would tend to recommend the special repayment.

Special repayment is probably the best option in the short term.

Based on the facts, rather with the one with the higher interest rate.

Maybe it also makes sense to merge the two loans in 2028? Then make a special repayment on the 2027 one, so that the expensive interim financing is not so significant.

I would increase the monthly repayment and thus the installment. You then repay evenly, the money is gone and cannot be spent on consumption. In addition, you get used to the higher monthly burden.

It's a classic that I have always warned about. In a historic low interest rate environment, I set the repayment high and do not go so low.

I personally would invest the 600 euros per month you mentioned in an ETF, e.g. MSCI World, and then mentally forget about it.

There are ultimately only three scenarios:

1. Inflation and interest rates continue to rise: Then you can assume that you will also have significant salary increases by 2027 and your financing in relation to your salary will decrease significantly. Inflation will then pay off your house. Just keep investing in the ETF because the new rate won't really bother you. Check again in 2037 to see how it stands and, if necessary, pay off the remaining debt in full at once.

2. Inflation and interest rates remain as they are now: Then you can assume that you will also have significant salary increases by 2027 and your financing in relation to your salary will decrease significantly. Inflation will then pay off your house. Just keep investing in the ETF because the new rate won't really bother you. Check again in 2037 to see how it stands and, if necessary, pay off the remaining debt in full at once.

3. Inflation and interest rates decrease: Then you can assume that you will have rather modest salary increases by 2027. The ETF will probably have increased significantly more than in the other two scenarios. Look at the current value and consider whether you want to make a larger special repayment at the end of the fixed interest period. If not: keep investing and enjoy the annual dividend and the increase in value. Check again in 2037 to see how it stands and, if necessary, pay off the remaining debt in full at once.