fateffm
2022-05-08 13:50:36
- #1
We did it the same way, and also accepted the loan for which we quickly gathered all the documents before Easter. It was extremely stressful because we were not at home over the holidays and accordingly needed all missing documents via email. I am amazed at how well notaries, employers, etc. cooperated in quickly scanning things for us.
May I ask how long you fixed the rate at 2.05%?
One has to be fair and say that this model offers the security of a full fixed interest rate until the loan is completely paid off. This security naturally costs extra.
But it has the advantage that you already know the worst-case interest rate today.
It definitely depends on the framework conditions. Especially how much you finance and how much you can repay.
I would advise against a 10-year fixed interest rate for someone with a financing amount of 500k and 2% repayment, or it would already be relatively risk-prone.
Take this as an example: 500k financing amount, fixed for 10 years at 2.05% with 2% repayment p.a.:
Monthly rate of €1,687.50, but: after 10 years still €389k debt on the clock.
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 unrealistic, given the current interest rate development), the rate would already be €1,860 - if the 2% repayment remains. But with this you won’t get rid of the loan because after a total of 20 years you would still have €237k debt. Or you repay more, but that has to be affordable first.
With comparable building savings plan variants, the rate is a bit higher from the start, but you are done with that after 28 years and know that you don’t have to make special repayments, and if you do, you pay off the debt even faster.
I’m not saying that the building savings plan models are the only truth. In the end, we also decided against them. However, based on calculations and our assessment of our personal development possibilities in the coming years. Ultimately, only each person can know that for themselves.
I just wanted to say that these building savings plan models are not inherently bad just because they are somewhat less easy to understand. For risk-averse people, they are very attractive right now.
:) then we can both be happy about the completed financing! We chose an interest rate fix period of (only) 10 years, repayment 2.5%.
Yes, of course, I didn’t want to badmouth the building savings variant across the board. But I think, based on our (not very meaningful) experience, it is sold much better than it actually offers. That this variant, at least with the first offer we had, would have meant about €300,000 in interest costs (so about 40% more than what we would pay now, naturally assuming a stable interest rate), wasn’t even told to us. I had to calculate that myself. I think for someone less financially savvy, it’s not so easy.
As you correctly recognized, I am betting that the interest rate won’t be over 4% in 10 years - and that for an amount that will be smaller in 10 years than what I have to finance today. Among other reasons precisely because interest rates have risen so sharply in such a short time - but that doesn’t matter, since it is just my opinion. What mattered to me was the following thought: nobody can know where interest rates will be in 10 years. I can only determine how high my interest rate will be for the next 10 years, or how much I repay of the loan in the next 10 years. Why would I choose to pay considerably more interest in the next 10 years and at the same time repay little or nothing? And also pay some commissions and fixed additional costs to the bank?
I also agree, as you wrote, that this can be an attractive solution for low-risk people – but precisely with these people, I see the danger that they don’t fully understand it and sign something they haven’t completely grasped just because they trust their own bank advisor and may also be under some time pressure. So I just want to encourage people to think carefully, recalculate, and do research themselves before making such a big decision. There are good resources for this nowadays, such as this forum :)