Financial plan with a building savings contract or with risk?

We, my wife and I, want to buy the house from a community of heirs (relatives) very cheaply. The house needs to be renovated, for which we need the amount mentioned below. The house with the land is worth about €75,000. We are getting it for €40,000, which corresponds to our current equity. We have now received a financial plan and I would like to know what you think about it?

Gross income €2200 + 13th monthly salary + €183 child benefit
Equity €42,000
Loan amount €117,000

Option 1 (Risk?)

[*]€50,000 from KFW with 1.51% effective interest fixed until mid-2022 with a repayment rate of 2.78%. (€178.51/month)

[*]€67,000 from the bank with 2.98% effective interest fixed until February 2027 (€311/month)

Option 2 (Safe?)

[*]€50,000 from KFW with 1.51% effective interest fixed until mid-2022 with a repayment rate of 2.78%. (€178.51/month) same as in Option 1

[*]Building savings contract with 0.50% credit interest, savings contract sum: €67,000, payout amount: €40,000, nominal interest rate: 2.95%, effective annual interest rate: 3.9%, final installment in November 2036

What do you think about it? For the 2nd option I know the interest rates, for the 1st they can change?

Calculate the second part of both options for yourself. For part 1 with different interest rates after 15 years. With the small remaining debt, that shouldn’t be a deal breaker. I generally don’t think much of [Bausparverträgen] in connection with a loan, but I would definitely calculate it. You can ask your advisor about the breakeven interest rate : )

At a 1% difference (2.98 vs 3.9) in the interest rate, I would choose the option without the [Bausparvertrag] given the relatively small amount..
At the end of the fixed interest period, with €311/month (~2.59% repayment), you have an outstanding debt of ~€34,000... That is relatively manageable...

I have now been explained the financial plan. It appears a little different than initially understood.
Here is the correct presentation:



Here are the details of the loan that is being offered to us:

[*]50,000 from the KfW with 1.51% effective interest fixed until mid-2022 with a repayment rate of 2.78%. (€178.51/month) Term 30 years

[*]€67,000 from the bank. In the first 10 years I pay 2.98% interest. At the same time, I pay into a home savings contract that will be eligible for allocation after 15 years (at 40% there will then be approx. €27,000 credit available). It can be eligible earlier with higher contributions. The home savings balance together with the home savings loan will then replace the loan. I then pay 2.95% interest on the home savings loan. (Overall interest rate of the home savings contract effective 3.9%)

In the years 10-15 the interest rates on the loan must be newly fixed. That means year 1-10 = 2.98%; year 11-15 = ?,?% interest; year 15-25 = 2.95% interest.

Is this variant sensible? I have a "certain" interest rate security except for the years 11-15, although one cannot say today how interest rates will develop.

It's not quite clear to me yet..

Are you paying only interest on the 67,000 from the bank at 0% repayment and instead of repaying, you are saving 150€ per month into the building savings contract?

I then pay 2.95% interest on the building savings loan. (Total interest of the building savings contract eff. 3.9%)

27k€ are then in the contract, so you get a 40,000 loan... are you now paying 2.95 or 3.9% on this 40,000? Or what is meant by total interest?

What is the interest rate for your savings in the building savings contract? I assume negligibly small ;)

I suspect the building savings contract will then be repaid in 10 years so that your entire financing is completed in 25 years.

If I play a bit with the numbers, it looks like this:

67,000 at 2.98% with 0% repayment = ~166€/month + 150€ building savings = 316€ monthly rate in the first 10 years. Interest costs during this time ~19,920€

Afterwards, we assume a moderate increase to 5% interest rate for the next 5 years... 67,000 at 5% with 0% repayment = ~278€/month + 150€ building savings = 428€ monthly rate in years 10-15. Interest costs during this time = 16,680€

Now the building saver becomes eligible and you have to repay 40,000 in 10 years at 2.95% interest. That makes a monthly rate of 385€. Interest costs during this time: 6,244€

Total interest costs = 19,920 + 16,680 + 6,244 = 42,844...

with an average monthly rate of 366€ over the 25 years

Sounds VERY modest....

If I calculate with a pure bank loan with 25 years term and 4% interest rate with full repayment in this time, that is 357€ per month.. Interest costs during this time: 38,319€

Or 15 years fixed interest at 3.4% and 366€ monthly rate = 25,400€ residual debt with 24,300€ interest costs. Then follow-up financing of 25,400 at assumed 5% with still 366€ monthly rate = debt-free after another 7 years (22 years total) and further interest costs of 4,643€
= total interest costs of 28,943...

Maybe I am making wrong assumptions... But here again is another problem with the building savings contract story: It is much more complicated than a normal bank loan...

Maybe I am starting from wrong assumptions... But that is exactly another problem with the building savings contract story: It is much more complicated than a normal bank loan...

Well said.