Financing single-family house - How much can we afford?

2014-03-26 10:52:05

To pay off €250,000 you need a minimum of €1200-1300. Then you repay with 1%. The remaining debt will be high, and you can barely afford anything for the next 20 years.

I assume you mean 2% repayment? €250,000 * (3.5% interest + 2% repayment) / 12 months = €1,146

I don’t know the current conditions. A year and a quarter ago we still had a 2 in front of the decimal for a 15-year fixed interest period.

What I notice in your calculation:

1.) Consider how much value a car loses per year. You have to set that as a reserve/car fund. You won’t get far with €150. Additionally, the reserves for the house €150/month * 20 years = €36,000. I don’t think you get far with €36,000 in 20 years when the first major repairs start, especially since most of that will have already been spent on small things (painting, new carpet, heating repair, etc.) But you have set the €150 as a reserve for both. *facepalm*

2.) Is no vacation considered? Do you never want to go on vacation?

3.) Are the insurance prices correct? For example, we still have a life insurance for each of us. In case something happens to one, the other can at least continue to pay the loan installments for a while and still manage to live. This doesn’t have to cover the entire loan amount since with two earners the other can still go to work. For two earners you need coverage for both.

2014-07-11 13:08:19

Honestly... with all the stuff you read here - no one needs to build anymore.

You didn't build because you were advised against it HERE? Crazy. ^^

What is the current status with you guys?

2014-07-11 14:34:08

Honestly... reading everything here - no one needs to build anymore.

You didn’t build because you were advised against it HERE? Crazy. ^^

That’s nonsense what you’re writing. There really are enough people who have something or even significantly more available per month and can therefore finance higher amounts. And that financing €250,000 with an income of €3,100 when family planning is not yet completed is quite tight, you surely can’t deny that, right?

That it looks somewhat better with €3,500, no one denies. But even then one should really be aware of the costs of maintaining a house. And that in the beginning you might forget one thing or another in your planning, that is completely normal. That’s what a forum is for – to simply give advice on what might not have been considered. Most here have more experience than the OP because they are either professionals or have already built/bought themselves and can better estimate the costs. They just want to offer support. What the OP then makes of it is their own decision.

And when I read on the first page that after the monthly cost calculation there are still a whole 53 euros left (regardless of the now somewhat higher salary), all alarm bells go off for me. That’s nothing when you have to maintain a house. Something just has to go wrong once (whether with the house, the car, the washing machine, etc.) and the whole calculation is worthless. That’s what they want to make clear to the OP, nothing more and nothing less. In the end, everyone is the architect of their own fortune. It can work, sure, but it can also go badly wrong. The question is always how much risk one is willing to take.

2014-07-29 13:29:55

I currently have the following financing offers, but I’m not quite sure which one would be more reasonable. I mainly have problems figuring out which interest rate I should continue calculating with after the fixed interest period. What would be assumed here? 5%? Or is that too optimistic?

We want to pay off €1,000 per month – we don’t want to burden ourselves with more.
Special repayments of 10% of the original loan amount per year are possible.

Option 1:
Interest rate of 2.4% for 10 years
Remaining debt: EUR 182,264 (there is interest rate risk here)

Option 2:
Interest rate of 2.85% for 15 years
Remaining debt: EUR 158,890 (there is interest rate risk here)

Option 3:
TA loan

€150,000 via bank
Interest rate of 2.37% for 10 years
Remaining debt: EUR 105,000 (there is interest rate risk here)

€100,000 via building savings contract
Interest rate until allocation readiness: 2.9%
Interest rate after allocation: 3.3%
Duration with planned payoff: approx. 28 years, no interest rate risk

Which option would you choose? With option 3 I have worse interest rates, but after 10 years the interest rate risk is “only” with around €100,000, whereas with option 1 it’s already €182,000. Option 2 might be a compromise?!

I really have trouble assessing the interest rate risk. I definitely don’t want to fall into a hole after 10 years and suddenly be over-indebted because I can’t service the high interest rates. At the moment, I’m leaning more toward option 3 (based on gut feeling) – but I’d have to somehow (how?) calculate whether the extra interest might offset a possible interest increase after 10 years.

Would be very grateful for opinions/help.

I hope this isn’t too late now:
Have you tried to make the effects of the interest rate risk clear to yourself? I made a table where I calculated the total interest costs over the entire repayment period for each of the options. Then I knew that an interest rate of 5 or 7% in 10 or 15 years wouldn’t affect me much because the remaining debt was already reduced far enough. Try it for yourself. Interest rate risk alone is too abstract a concept.

Regards and good decision-making
Michael

2014-07-29 13:58:37

Interest rate risk is a quantitatively measurable term considered under scenarios.

There is nothing abstract about it, except for the unrealistic assumptions that some throw into the room in this recurring discussion. (In general, without looking at specific individuals)

2014-07-29 14:18:54

Interest rate risk is a quantitatively measurable concept considered under scenarios.

Yes, absolutely. That’s why I suggested that the OP quantify it. It seemed to me that he just listed interest rate risk as a problem in the variants. It is important to know how big it actually is.

There is absolutely nothing abstract about it, except for the unrealistic assumptions some people bring up repeatedly in this discussion. (In general, without looking at specific individuals)

Unrealistic assumptions, of course, quickly invalidate the value of a calculation. But once you have a reasonable calculation model, you can try out exaggerated high interest rate assumptions to see what would happen and whether you can survive that. Regards Michael

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Financing single-family house - How much can we afford?

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