Financing decision experiences

And with the home savers, don't forget all the fees like the hefty closing fee and transfer fee!

And as already mentioned: in the savings phase, there is basically almost no interest!

And additionally, a higher amount is being interest-bearing on the simultaneously running loan because the savings rate in the home saver does not flow directly into repayment.

And additionally, a higher amount of the running parallel loan is being interest-charged because the savings rate in the building savings contract does not flow directly into the repayment.

At 0.7% that is very manageable.
The allocation is a certain risk, that's true, but I am in constant contact with my banker to gauge whether it will work out and if necessary I will pay in more or increase the rate to become allocation-ready faster. At the moment, however, everything is fine in this regard.
The fees might be off-putting at first, but they have always been only 1%, meaning 1800€ for all three together, and as already mentioned, just through the employer shares in the capital-forming benefits we already have almost three times that amount without considering compound interest.
Another advantage is that during the repayment period I can make special repayments whenever I want.
But sure, it's a bet on the future or, in our case, simply a form of security.
Also clear is that with 220K relatively little external capital was needed, which today, of course, is no longer imaginable in this form for a new build.

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

Just as a thought...

That is of course true. What I meant with the inflation note was rather that the loan amount stays the same, whereas 10 years of inflation usually affects both the price level of goods and salaries, which tends to have a positive effect on debt. How you invest afterwards, you have to decide then, but even if you let the loan run and become "technically debt-free" through other investments, for me the feeling of having repaid the loan might also be worth something. Of course, economically that may not be sensible. It depends on what the economy looks like at date X.

And for building society savers, don’t forget the fees like the hefty closing fee and transfer fee!

Closing fee and annual costs usually have to be disclosed in the offers. Of course, you should factor them in, clear.

And as already mentioned: in the savings phase there is basically almost no interest!

If you pay back your annuity loan instead, you also don’t earn any credit balance interest. You just save interest on the loan.
When comparing offers, I simply calculated the total costs over the term.
So what total interest and fees do I pay over the first 15 years, and how high is my remaining debt then.
And then you can look at the next 15 years and compare the fixed interest rate of the building society loan with possible interest rates of annuity loans, calculate costs, done. I found a break-even point with my offers if annuity loans were around only 3%.

That means I would be risking 12 more years of interest rate certainty to gamble that nominal interest rates in 15 years would be below 3%.
That is then a matter of consideration.

- the total costs were too opaque

Why?

- the monthly payment would be higher than with the annuity loan

True, that is often the case. In our case it would be a manageable difference. But still somewhat higher.

- Certain risk with the allocation exists:
- what happens if you’re no longer creditworthy in 15 years?

What happens to your remaining debt on the annuity loan if you’re no longer creditworthy in 15 years?
Assuming that, you generally should not finance anything anymore, regardless of the structure.

- Financing gap between loan expiry and BSP allocation,

Our offer guarantees that the TA loan with the fixed interest continues until allocation. Usually, there should be no such discrepancies, experience shows that with proper saving they are more often ready for allocation sooner rather than later.

- Creditworthiness of the building society?

There has never been an insolvency of a building society in Germany. Additionally, there is deposit protection.

- 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, after 10 years nothing has been repaid yet, the loan-to-value ratio is still very high.
Also, I don’t know if an early special termination with the BSP even makes sense.

You can also terminate early with the TA loan anytime after 10 years. For example, if you have saved diligently into the building society and it goes to allocation after 12 instead of 15 years. And even if not - if market rates are significantly lower after 10 years, you can still refinance / renegotiate. The building society savings you accumulated over the 10 years are not lost just because they are in that contract. You can prove them as equity and accordingly have a lower loan-to-value ratio.

It’s also a bet on the future and depending on how it turns out, you sometimes win or lose.

I agree. :)

A little tip: Many financings fail not because of job loss or death... but because of separations/divorces... Sure, if you're under 30 you don't think about it, but it can look different over 40. And then you have double the problems if your family or even worse, the parents-in-law have guaranteed. Because I wouldn't want to experience the fight that then arises.

Hello everyone, I wanted to give a quick update on our financing: yesterday we received the loan agreement from ING and even got a better interest rate than expected, we ended up at 2.05% nominal interest rate ("normal" annuity loan, without parents' house as collateral). So we are very satisfied and will obviously accept this offer. The rush to submit all documents on time was definitely worth it!

Regarding the building savings contract, I can only say the following: we also received two such offers. The first one from a Volksbank + Schwäbisch Hall: for the first 20 years only a building savings contract on the entire loan amount (nominal interest rate at 2.17%), then allocation followed by an annuity loan (nominal interest rate at 1.55%). The second offer from Deutsche Bank, with a parallel building savings contract at 2.35% and annuity loan at 2.45%. I find these offers quite confusing for a layperson, especially the way they are sold. I calculated both very thoroughly in Excel, and for the first offer the total interest costs are horrendously high. To pay similarly high interest, today we would need a loan with 3.1% interest over 30 years, or if we consider the ING interest rate for the first 10 years, we would need to refinance at 4.2% for this option to be worthwhile. The offer from DB is already cheaper, even though the interest rates initially sound higher. But there you only have partial interest rate security since the annuity loan is only fixed for 10 years anyway. Therefore, we decided against these offers and accept the interest rate risk. Better to repay more over the next 10 years at a lower interest rate than buy interest rate security (expensive) and barely or not repay anything in the first 10 or 20 years.

Hello everyone, I wanted to give a brief update on our financing here: yesterday we received the loan agreement from ING and even got a better interest rate than expected, we ended up at 2.05% nominal interest ("normal" annuity loan, without parents' house as capital). So we are very satisfied and will logically accept this offer. The rush to submit all documents on time was definitely worth it!

We did the same and also accepted the loan for which we quickly gathered all documents before Easter. It was extremely stressful because we were not at home during the holidays and therefore needed all missing documents by e-mail. I am amazed how well notaries, employers, etc. cooperated and scanned things for us quickly.

May I ask how long you fixed the rate at 2.05%?

I find these offers quite confusing for laypeople, especially the way they are sold. I recalculated both very thoroughly in Excel; for the first offer, the total interest costs are horrendously high. To pay comparably high interest, we would today have to take a loan with 3.1% interest over 30 years, or if we base it on the ING interest for the first 10 years, we would have to refinance at 4.2% for this option to be worthwhile.

To be fair, this model offers the security of a full fixed interest rate until the loan is completely paid off. This security of course costs extra.
But it has the advantage that you already know today the worst-case interest rate.

Better to repay more in the next 10 years at a cheaper interest rate, rather than buy interest rate security (expensive) and repay little or nothing in the first 10 or 20 years.

It certainly depends on the circumstances, especially how much you finance and how much you can repay.
For someone with a financing amount of 500k and 2% repayment, I would advise against a 10-year fixed interest rate, or at least it is quite risky.

Take as an example: 500k financing amount, 10 years fixed at 2.05% with 2% repayment p.a.:
Monthly rate of €1687.50, but: after 10 years still 389k debt outstanding.
Assuming the party made some special repayments and reduced the residual debt to 320k.

With a hypothetical follow-up interest rate of 5% after 10 years (which is not completely unlikely, considering the current interest rate development), the rate would be €1860 – if you want to keep the 2% repayment. But you wouldn't be rid of the loan, because after a total of 20 years you'd still have 237k debt. Or you repay more, but you first need to be able to afford that.

With comparable building society saver variants, the rate is a bit higher from the start, but you are done with the thing after 28 years and know that you don't have to make special repayments, and if you do, you just get debt-free faster.

I am not saying that the building society saver models are the only truth. In the end, we also decided against them. However, based on calculations and our assessment of our personal development prospects in the coming years. Only each person can know that for themselves in the end.
I just wanted to say that these building society saver models are not inherently bad just because they are a bit harder to understand. For security-loving people, they are very attractive at the moment.