Financing through building savings? I don't see the catch.

  • Erstellt am 2013-06-02 18:05:27

ViciousJake

2013-06-02 18:05:27
  • #1
Hello,
currently we are seriously having an offer calculated for us, which I initially declined, still find strange, and yet apparently is the best for us. (HELP!)

Regarding the key data:
Equity: 120K€
To be financed: 290K€
Total volume: 410K€

Requirement: installments max. 1250€/month

We currently have an offer from a bank that guarantees our interest rate over 27 years. It is a package where only the interest on the loan is paid until the allocation of the building savings contract, and the building savings contract then repays the loan. Interest rates are 2.6% before and 2.9% after allocation. The loan would have a volume of 240K€. 50K€ would be covered via Kfw at 1.15%.
There is also a special repayment right of 10% p.a. in the years before allocation, which we want to use as much as possible until the children arrive, but otherwise no repayment is planned in the first years.

We are aware that banks make a good profit from this model (a lot of interest + 1% completion fee for the building savings contract). And yet, after numerous consultation appointments, we found no alternative model that would let us finish payments within 30 years at the given installments and at the same time promise a certain interest rate security.
This surprises me a lot and yet I currently find nothing better.

As I said, there is currently an inquiry with the bank that offers this model. However, with our current advisor we are not entirely sure if we really learn about all the catches, even though after a frank talk we now feel better informed and involved. However, we have already dismissed two advisors (one independent, one bank) because they apparently only wanted to sell their thing and did not respect our requirements.

With alternative calculations, we suddenly had installments of up to 1600 euros or high residual debt amounts after 10 years, which could become problematic if interest rates were to rise above 5%.

Do you have an assessment?
Thanks a lot in advance,
Jake
 

emer

2013-06-02 20:14:06
  • #2
What do you want to hear now?

My bank did exactly the opposite in the consultation because I made it clear from the start that I wouldn't be fooled and they lost me at "I have something really great in the drawer."

The building savings option is rarely the cheaper option compared to the classic annuity loan.

I consider the rate to be OK. Even if it should be a bit higher. With an interest rate fix of 15 to 20 years, the residual risk regarding the remaining debt should be more than manageable (without calculating exactly now).

Paying interest for such a long time without paying off a single cent would not be an option for me either.

The statement: paying €1600 and having such a high remaining debt after 10 years that the interest rate "must not" be above 5%, I (also without calculating) consider to be a rumor.
 

ViciousJake

2013-06-02 23:10:23
  • #3
That they like to tell you things, that is clear to me too.
We don’t want to set the rate any higher; we’d rather pay a substantial amount in extra repayments in the years when there are no children yet. But we also want to be solidly positioned during the time with children.

In the statement with the 1600€, there was an "or" between this amount and the high residual debt. So different offers were meant.
If we invest 240,000€ for 10 years at 2.25%, a residual debt of 166,062.72€ remains. I calculated 1000€, since about 200€ for the KfW has to be accounted for. At 5%, it would still work out reasonably well; beyond that, the repayment portion would become so small that it would hardly be worth it anymore because then the repayment period would become significantly longer again and the interest portion wouldn’t get smaller.
Or am I mistaken there?
The other offer looked like this: after allocation of a building savings contract, we suddenly had a rate jump of 400€, hence the sudden rate of 1600. I must admit that I already deleted the offer because of that...

Best regards, Jake
 

VDG

2013-06-03 18:10:14
  • #4
Hello, I assume that you have received an interest and repayment schedule from your advisor. (If not, demand it) There you can see the progression of the accumulation phase and the repayment phase. Basically, with building savings contracts, the problem for most people is that the monthly burden is too high... Since this is not the case for you, building savings obviously provide interest rate security which you have to pay a little extra for. Since an annuity loan with the stated interest rates will be fixed for a maximum of between 10 and, if you are lucky, 15 years, there is naturally the risk that at the end of the fixed interest period you might enter a high interest phase which can significantly increase the monthly rate. (I built my first house in 1990 at about 7% interest)

One option would be: have a loan calculated with a monthly burden of €1200 and a very long term of 25-30 years and try to make as many special repayments as possible in the first years. Most banks are willing to be flexible regarding the amount of special repayments since interest rates are currently low and it is therefore good for the banks if a loan is paid off “faster.”

But even with this secure option, the interest rate will naturally be higher,... (in life, almost nothing is free :-) ) By the way, with KFW, if you build a KFW 70 house, you can claim €50,000 twice (KFW home ownership and KFW 70 house)

Best regards
 

ViciousJake

2013-06-03 18:30:02
  • #5
Hello VDG, thanks for your answer. We are building a KfW55 house, so we have also calculated 50,000 euros at 1.15%. As it looks right now, we will probably choose a safe option and pay the corresponding price. We don’t want to be among those who need money in 10 years when so many others need it too and it gets expensive. I’ll get back to calculating then. Regards, Jake
 

DerBjoern

2013-06-04 08:17:07
  • #6
Hi!

I am actually also against financing through building savings contracts, as these are often more expensive than annuity loans. But in my financing, I also have a component of a €50,000 building savings contract. It is a Riester contract. However, we will use it normally and not as a Riester. In other words, we will use the contract without the state Riester allowances and tax benefits. It offers me an effective interest rate of 2.78% over the entire term considering all costs with 25 years of interest rate security (without using Riester!) Another advantage was the subordination of this loan. Thus, indirectly, the interest rate of my annuity loan also improved. :) I had calculated all variants, and in this case, the building savings contract was a good choice.
 

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