Finance and buy or continue renting in the Stuttgart area?

Small update:

I have meanwhile spoken with 2 financing advisors and obtained offers. I built an Excel sheet for the calculation (quick and dirty :) ), in which I can quickly enter the data and simulate based on the expected return on the capital market which offer sounds best to me.

I still have 3 financing consultation talks this week, but I wanted to give you an interim status.

[*]A conversation with the bank that is also financing the developer and the project
[*]A conversation with Ing-Diba
[*]A conversation with LBS (they apparently want to do something with building savings contracts ...)

The following offers are available to me. All have a fixed interest rate for 10 years and different amounts of equity used.

1) Loan amount 355 TEUR divided into 2 annuity loans; equity 67,650 EUR, monthly rate 1,037.66 EUR, mixed interest rate 0.983% / 1.0%

Loan	Nominal / Effective Interest Rate	Loan Amount	Repayment	Monthly Rate	Remaining Debt
Annuity Loan A	0.78 % / 0.80 %	266,000	2.7	771.40	191,329.95
Annuity Loan B	1.59 % / 1.61 %	89,000	2.0	266.26	71,789.09

2) Loan amount 398 TEUR divided into 2 annuity loans; equity 24,650 EUR, monthly rate 1,199.30 EUR, mixed interest rate 1.15% / 1.17%

Loan	Nominal / Effective Interest Rate	Loan Amount	Repayment	Monthly Rate	Remaining Debt
Annuity Loan C	0.78 % / 0.80 %	266,000	2.7	771.40	191,329.95
Annuity Loan D	1.89 % / 1.92 %	132,000	2	427.90	102,965.38

3) Loan amount 337 TEUR divided into annuity loan and KFW, equity 85,650 EUR, monthly rate 1,131.67 EUR, mixed interest rate 1.05% / 1.07%

Loan	Nominal / Effective Interest Rate	Loan Amount	Repayment	Monthly Rate	Remaining Debt
Annuity Loan E	1.03 % / 1.05 %	217,000	3	728.76	148,459.99
KFW	1.10 % / 1.12 %	120,000	2.929	402.91	66,890.53

My analysis so far assuming that the saved capital is invested at a certain interest rate and also the delta up to a total monthly rate of 1,300 EUR is invested:

[*]2 is better than 1 if the annual return after taxes on the capital market is above approx. 2.6% over the 10-year term
[*]2 is better than 3 if the annual return after taxes on the capital market is above approx. 4.4% over the 10-year term

Therefore, I would exclude financing model 1. The decision between 2 and 3 is difficult, but I lean towards 3.

Are there any disadvantages when buying into KFW?
What is your opinion on the issue of remaining debt?
The rates for financing proposals 1 and 2 can also still be increased. My idea here would be to especially raise the repayment for the more expensive loans as much as possible and accordingly lower it for the large loan, so that a rate below 1,300 EUR monthly results. Is there anything speaking against this from your perspective or does that make no sense?

I hope I haven’t overlooked anything significant.

Best regards and many thanks in advance for reading

In all three constellations, you have an open loan with 200K debt that needs to be serviced with a new interest rate. Calculate which interest you have to pay at 4%.

Why not fix the loan for 30 years?

Hello Rumbi441,

because the interest rate surcharge would be too high for me. I haven't had it calculated yet, but I assumed that a fixed interest rate period of 30 years offers a lot of security but also means a considerable interest rate surcharge.

I will have offers for a fixed interest rate period of 15 years given to me. I did not want to go any further.

Best regards

My analysis so far assuming that the saved capital is invested at a certain interest rate and also the delta up to 1300 EUR monthly total rate is invested:

[*]2 is better than 1 if the annual after-tax return on the capital market is above about 2.6% over the 10-year term
[*]2 is better than 3 if the annual after-tax return on the capital market is above about 4.4% over the 10-year term

So you are borrowing money to buy a fundamentally volatile asset and at the same time investing capital speculatively instead of using it to reduce the loan. Such a construct is usually called a hedge fund and is normally only open to institutional investors...

A hedge fund on two legs

because the interest surcharge would be too high for me. I haven’t actually calculated it now, but I assumed that a fixed interest rate for 30 years offers a lot of security but also means a considerable interest premium.

As already said here: Calculate the installments for your remaining balance after 10 years at an interest rate of 5% (which is still below the long-term average). Can you still afford them then? Assuming your ETFs are also just after a crash so far underwater that you would rather avoid using them to reduce the remaining debt for the follow-up financing...

So you borrow money to buy an inherently volatile asset and at the same time invest capital speculatively instead of using it to reduce the loan. Such a structure is usually called a hedge fund and is typically only open to institutional investors...

A hedge fund on two legs

As already said here: Calculate the installments for your remaining balance after 10 years at an interest rate of 5% (which is still below the long-term average). Can you still afford them then? Assuming your ETFs are also just after a crash so underwater that you would prefer not to use them to reduce the remaining debt for the follow-up financing...

Hello Scout,

I only tried with the calculation to achieve a certain comparability between the offers. Maybe I also chose the wrong criteria, but that was my first attempt. According to which (preferably) objective criteria would you build a comparison? In the end, I would also have to compare loans with a 30-year term in the same way.

Thanks and regards

Add as a criterion how high your remaining debt is after the fixed interest period ends. I would want at least 50% paid off for my peace of mind. For that, you will need around 15 years of term. After 10 years, you have a unilateral special termination right anyway if the interest rate level is more favorable for you then.

You can also split into 3 loans with the same institution: 1x KfW (do they offer a premium for your home construction?) for 10 years, 2x for 15 years. For the KfW loan you cannot make special repayments but you can save extra for the end of the term and possibly redeem this component. Especially if in the second half of the 10 years you notice that the interest rate level is rising sharply, you can grit your teeth and save extra for the redemption after the term ends.

If not, you extend and are under water with that part only if the interest rate level is higher. If you redeem the KfW loan, on the other hand, you could pull an agreed repayment rate change option for one of the other two components (on the larger of the two) and then pay it off faster. Or if it gets tighter once, you reduce the repayment for that component.

This way you have quite a few options.