Financing decision experiences

So building savings contracts only have 2x justification in total.

1) When interest rates are very high, you take out a building savings contract (where you still had 1-3% credit interest) to get better interest rates at low rates on the market. But I think this option has become obsolete, and we will hardly ever see building savings contracts with 1.50% credit interest again.

2) Interest rate hedging for the future
this is rather the most interesting. You buy "cheap interest" for the future.
Of course, here the repayment flows, where you only get 0.10% interest, but in return you have loan interest at 2.00-2.50% for the future, which should be very interesting in the current situation.

The advantage of the building savings contract is clear with the high volumes of financing. If I have to finance 60%, 70% of the total costs, then I can conclude a fixed interest rate cheaply for 20-30 years through insurance companies/banks.

But if I want to finance 80% - 90% of the costs in the long term, the surcharges are so enormous that it is not worth it (because there are hardly any banks/insurance companies that want to finance for so long at such high volumes. Most stop at 80%, and then please 80% of the determined value (so we are rather at 70% or lower).

Therefore, this combination is worthwhile:
Bank, with 15 years, then building society with 15-18 years, and you are debt-free. You can fix the rate from the beginning and know exactly what you have to pay in interest/costs for the 30-33 years.

therefore this combo is worthwhile after all:
Bank, with 15 years, then building society with 15-18 years, and you are debt free. You can fix the rate from the beginning and know exactly what you will pay in interest/costs for the 30-33 years.

This model is currently our favorite. You have a known rate until debt freedom.
Additionally interesting in our offer is that we are allowed to pump in up to 5% p.a. extra both into the TA loan and into the building saver. In the TA loan you would have the compound interest effect, so that is naturally interesting. And with the building saver you can save an extra 5% again if you have already used up the 5% on the loan within one year.

In the first years rather unexciting, the rate is thick enough at current interest rates. But in 10 years, with inflation and expected salary increases, these are good ways to be debt-free faster.
As soon as you reach the building loan, you can repay as much as you want at any time. These are exactly the last 15 years or so, in which I also find the opportunity particularly interesting. Also a nice bonus.

So, in 2015 we also took out a building savings contract for 120K for which we pay 0.7% interest annually, which in our case amounts to 70€ per month, and for which we receive 0.25% interest during the savings phase. At the same time, we have two old building savings contracts from 2010 running with 1% interest, which already have five-figure amounts saved up and which after 10 years will repay the remaining bank loan of 100K at 1.45% interest. In this process, we will still take a loan of about 16K at 1.95% interest with a 40K building savings contract and will simply withdraw the saved 16K from the other (20K building savings contract) by then. Then there is also a "residual risk/delta" of about 5000€ (for the bank loan to be repaid), which we will either pay from our savings or refinance with the follow-up financing.

Why did we decide on this structure?!
1. We already had the two building savings contracts that we had already concluded before we seriously dealt with the topic of building, also because I have a fairly conservative father-in-law who advised us to do so at the time.
2. We bought ourselves a certain interest rate security with it, which did not seem necessary for a long time but now lets us sleep absolutely peacefully.

For a long time it looked as if we would not need the building savings contract in this form and I kept checking from time to time under what conditions I could finance the remaining debt after 10 years, of about 85-120K, depending on what we do with the two old building savings contracts and I always read something between an interest rate of 0.5%-0.85% and was already looking forward to it.
That would of course have been the easiest, a refinancing at 0.5% which simply repays everything and then either continue to save into the two old building savings contracts and benefit from the interest, or simply withdraw the money and deduct it from the financing amount. We probably would have financed a little more and kept the building savings contracts running, since the interest rate of 1% would be higher than the 0.5%-0.85% and so we would still have a nice buffer for a new car or unforeseen expenses.

Now, however, it rather looks as if we might have to make use of the lifelines of 2.95% and 1.95% from the building savings contracts, which does not kill us with a remaining debt of then about 85K.
We will see where interest rates go by 2025 and then we can make a relatively easy decision about what makes the most sense for us.

Since the individual parameters in text form might be somewhat unclear, I’ll summarize them again here:
House financing 2 loans:
1. Building savings contract 120K with 0.7% interest annually = 70 euros per month, saved over 10 years with 0.25%. Remaining debt after 10 years about 65K, which will be charged 2.95% interest.
2. Annuity loan at the bank with 1.45% loan interest and an interest rate lock-in for 10 years and a remaining debt of about 61K

Old building savings contracts:
1. 40K 1% interest during savings phase and by the end of the bank loan’s interest rate lock-in saved about 24K. To repay the bank loan, the remaining approx. 16K at 1.95% interest.
2. 20K 1% interest during the savings phase and by the end of the bank loan’s interest rate lock-in saved about 16K.
The total thus amounts to 56K, which covers the 61K from the bank loan except for 5000€, which can be raised elsewhere.

What I want to say with this is, there isn’t always only one way that leads to Rome and a building savings contract isn’t always the worst solution. It certainly has a justification for existing. For example, since 2010 I have also been receiving the 40€ VWL monthly with an employer’s contribution of 26.60€ via the building savings contract, long before we started building. That alone is almost 5000€ only employer contributions until the loan is drawn.

Sorry for the long text :p

In the first years rather unexciting, the rate is thick enough at current interest rates. But in 10 years, with inflation and expected salary increases, these are good ways to become debt-free faster.

If inflation is higher than my interest rate, then early repayment is unattractive. With the expected and beginning interest rate increases, parallel investment products become more interesting than repaying the loan. Just a thought...

And with the building society members, don't forget all the fees like the hefty closing fee and transfer fee! And as already mentioned: during the saving phase, there is practically almost no interest!

We financed without a building savings contract, for the following reasons:
- the total costs were too unclear
- the monthly rate would be higher than with the annuity loan
- there is a certain risk with the allocation:
- what happens if you are no longer creditworthy in 15 years?
- financing gap between loan expiry and BSP allocation,
- creditworthiness of the building society?
- with a normal bank loan, you can terminate early anytime after 10.5 years if you get better conditions. With the combo TA loan + BSP, nothing is repaid after 10 years, the loan balance is still very high.
Also, I don't know if an early special termination with the BSP even makes sense.

I don't want to badmouth the combo TA + BSP here, it is often done and obviously works.
It's just a bet on the future and, as with any bet, you sometimes win or lose.