Financing of a plot

Hello,

we would like to buy a plot of land soon. Purchase price €70,000 plus property transfer tax plus notary, approximately a total of €75,000. However, we want to build only in 3-4 years, when our income allows it again (we have 2 small children, I am currently not working full-time). Nevertheless, we want to secure the beautiful plot now.
The loans should each be serviced with €250 per month, that is the installment we can still afford well in addition to the rent.

Equity capital is available in the amount of about €40,000, of which €10,000 each in 2 building savings contracts (Bausparern) with an interest rate on the balance of 2%. These could be split so that the building savings contracts are retained, but we extract the funds. In addition, there is another €10,000 in a Wohnriester, which, however, must remain untouched because the house is not to be built for about 4 years.
There is also €10,000 from an inheritance in a daily allowance account (Tagesgeldkonto).

Now the bank (or rather 2 different banks) has proposed 2 options to us, and we are not quite sure which is better:

Option Bank 1)
We provide approximately €20,000 equity from a building savings contract and the daily allowance account, the remaining €20,000 (1 building savings contract and Wohnriester) remain in place for the house financing.
In addition, we finance €55,000 through the bank with a variable interest rate and will incorporate the loan into the new large loan when the house construction starts.
Alternatively, they also offered us a fixed interest rate of about 2.5% for three years. They advised against a fixed rate over 10 years. Otherwise, the financing for the house would be too inflexible.

Option Bank 2)
We redeem €20,000 from the building savings contracts and €10,000 from the daily allowance account, the Wohnriester remains. That would be €30,000 equity.
In addition, we finance the remaining €45,000 through a loan with a fixed interest rate over 10 years. After that, the remaining amount would have to be renegotiated and paid off alongside the house loan (as before).

Which is better now? What are the advantages and disadvantages? We are not really sure. Maybe someone can help us.

Thank you very much

Option Bank 2 is ruled out for me, as normally no other bank is then available for the home financing, since the land register is already encumbered with a mortgage - unless you repay the 10-year loan with a prepayment penalty.

Option Bank 1 is customer-oriented in structure (which is not very common) and leaves you all alternatives open in three years. Whether it is TEUR 45 or TEUR 55 in financing amount does not really matter. Personally, I would completely get rid of the home savings contract and rather bring in more equity.

Option 2 would be out for me for the reasons nordanney mentioned. You then have no room for negotiation on the mortgage because no other bank will finance the house for you. And then you are at the mercy of Bank2's offer. It quickly becomes a take it or leave it situation. An acquaintance had exactly that, and the bank would not release him from the land loan even with a prepayment penalty. They insisted on contract fulfillment. So he also had to finance the house with them. And the interest rate was really lousy... ;)

Thank you for your quick responses. They confirm our "feeling."

What do you think about the options? Fixed interest over 3 years or better variable?
In both cases, it would currently be around 2.5% p.a.

With the variable option, one could also at any time (if it rises, it is based on EURIBOR) set an interest rate fixation for 1, 2, or 3 years, plus one could make unlimited special repayments at any time.
With the fixed interest of 2.5% over 3 years, special repayments would be limited to about €2700 p.a. (we can probably afford more), on the other hand, this money could of course also be saved differently for the house construction.

Since we do not know exactly whether we will build in 3 or 4 years, the question is what is better in our case.

Best regards

Thank you for your quick responses. They confirm our "feeling".

What do you think about the options? Fixed interest over 3 years or better variable? In both cases it would currently be around 2.5% p.a.

With the variable one, you could also fix the interest rate for 1, 2, or 3 years at any time (if it rises, it is based on EURIBOR), and you could also make unlimited special repayments at any time. With the fixed interest rate of 2.5% over 3 years, the special repayments would be limited to about €2700 p.a. (we can probably afford more), on the other hand, you could of course save this money differently for the house construction.

Since we do not know exactly whether we will build in 3 or 4 years, the question is what is better in our case.

Best regards

Hello

Both are good. It is pure speculation how the interest rates will behave. If there is a jump in 2 years, you might regret the variable one.

But it's not a Euribor, is it? There must be a margin added. How high is this?

I would do something completely different. Since I suspect that the prices for plots of land will continue to fall in the future, wait another 2-3 years before buying. Only buy it when you also have the money for construction. Otherwise, you will have a plot of land on your hands that you might not build on (nobody can see into the future). That happened to my brother, who eventually had to file for personal bankruptcy and lost his undeveloped plot of land.