Evaluation and Improvement of the Financing Option

Hello,

we have two financing options for the financing of a new construction project.
First, however, some information (deliberately kept brief). If more is needed, please point this out.

I have smoothed the amounts a bit. However, the interest rates are real.

General information about you:

[*]33 years, 34 years
[*]1 child + 1 planned
[*]Employed: electrical engineer, quality manager

Income and asset situation:

[*]Income: 6200€ (net)
[*]Child benefit: 250€
[*]Equity: 215,000€

Expense situation:

[*]Expenses: 3,500€ (basic securities/savings amounts are already included here)
[*]Balance: 2,700€
[*]Future additional costs: 450€

Cost breakdown:

[*]Total costs: 572,000€
[*]Deductible equity: 215,000€
[*]Financing amount: 357,000€

Option 1:
1 component:

Annuity loan

[*]Loan amount: 357,000€
[*]Interest rate (p.a. nominal, otherwise effective): 3.88% / 3.97%
[*]Fixed interest period: 20 years
[*]Remaining debt at the end of the fixed interest period: 140,000€
[*]Fictitious total term until full repayment: 28 years
[*]Initial repayment rate: 2.0%
[*]Monthly installment: 1750€
[*]Special repayments possible: 5% p.a.
[*]Repayment rate change possible: 2x free, otherwise 100€, 1-10%

Option 2:
3 components:

[*]Annuity loan
[*]KfW 124
[*]SAB home ownership rural area

Installment: 1,710€
Mixed interest rate: 3.09%

Component 1: Annuity loan

[*]Loan amount: 227,000€
[*]Interest rate (p.a. nominal, otherwise effective): 3.68% / 3.77%
[*]Fixed interest period: 15 years
[*]Remaining debt at the end of the fixed interest period: 113,600.00€
[*]Fictitious total term until full repayment: 25 years
[*]Initial repayment rate: 2.5%
[*]Monthly installment: 1169€
[*]Special repayments possible: 5% p.a.
[*]Repayment rate change possible: 2x free, otherwise 100€, 1-10%

Component 2: KfW 124

[*]Loan amount: 50,000€
[*]Interest rate (p.a. nominal, otherwise effective): 3.87% / 3.94%
[*]Fixed interest period: 10 years
[*]Remaining debt at the end of the fixed interest period: 42,000€
[*]Fictitious total term until full repayment: 35 years
[*]Initial repayment rate: 1.423%
[*]Monthly installment: 160€ (start-up phase), 220€ (repayment phase)
[*]Special repayments possible: total remaining amount after fixed interest period
[*]Repayment rate change possible: -

Component 3: SAB home ownership rural area

[*]Loan amount: 80,000€
[*]Interest rate (p.a. nominal, otherwise effective): 0.95% / 0.95%
[*]Fixed interest period: 25 years
[*]Remaining debt at the end of the fixed interest period: 0€
[*]Fictitious total term until full repayment: 25 years
[*]Initial repayment rate: 3.55%
[*]Monthly installment: 300€
[*]Special repayments possible: min. 2000€ p.a.
[*]Repayment rate change possible: -

Basically, we are interested in option 2, since we would like to take advantage of the SAB subsidy due to the favorable interest conditions. However, this requires a KfW housing construction loan - in this case the KfW 124. In our financing, this is the big disadvantage.
How could the KfW be best reintegrated into the financing at the end of the fixed interest period? I see the following possible options:

[*]Hope for a good prolongation.
[*]Set the annuity loan to a 10-year fixed interest period and thus consolidate the remaining debts and then refinance.
[*]Secure the remaining debt via an additional component using a savings contract, although the negative interest business should be considered here and the construct might then become expensive.
[*]Leave the option as above, save the remaining debt elsewhere and then repay it all at once. There is also the possibility to take the KfW loan as a bullet loan. What is the experience with that?

Or are there other possibilities?

Thank you very much in advance for the answers.

Carefully check the total costs, they seem very low to me unless it is being built somewhere in the middle of nowhere with a lot of personal effort. I would choose option 1, nicely straightforward, long security. The modules with different terms can cause problems when refinancing.

Well. Here, basically everything that is more than 10km away from a city with a million inhabitants counts as the sticks, and a lot of do-it-yourself means in this forum that you paint your own walls, lay the floors yourself, hang up the curtains yourself, and do the garden yourself...

In the end, it is a question of whether you believe that interest rates will be significantly higher in 10 years than they are now or not. If interest rates are significantly higher in 10 years, like 6, 7, 8%, then option 1 is the best. If interest rates are at 4% or less in 10 years, option 2 is (considerably) cheaper.

That’s the way it is. No one can tell you what will happen.

I would choose option 1, nicely uncomplicated, long-term security. The components with different terms can cause problems when refinancing.

Unfortunately, I cannot agree with that at all. You just have to take the trouble once to calculate and compare the accumulated interest:

Option 2 consists of three components. The total annuity amounts to €1,689.59 per month for the first 10 years (€1,169.05 + €220.54 repayment phase + €300.00) – whereas option 1 is €1,749.3.
The uncertainty in option 2 arises after 10 years, when the interest rate lock on the Kfw 124 loan ends. I would save €302.87 monthly alongside the total annuity in a fixed deposit account; this results in a total monthly burden of €1,992.45. After 10 years, at 2.5% interest (which is certainly available at the moment), you will have saved €41,328 to repay the KfW124 loan. If the interest is only 1.5%, you have around €2,000 less – the risk is manageable.

To avoid comparing apples and oranges, with option 1 you could set aside €250 monthly (total monthly burden €1,999.30) to make special repayments of €3,040 annually (including 2.5% savings interest).

So what is the result now?
Option 1 (assuming a constant interest rate over 20 years) you are debt-free after 24 years and 8 months and will have paid €189,484.54 in interest.

Option 2 (assuming a constant interest rate for the annuity loan after 15 years) you are debt-free after 25 years and will have paid €147,448.35 in interest, thus €43,258 less. – the interest rate change risk for the 5 years shorter interest lock on the annuity loan can’t be that big – because you also have that risk with option 1 after 20 years.

Excel is your friend!

This is version 1............word word

and here is version 2... word word exclamation mark