Financing - which construction financing is sensible?

Hello everyone,

I am just about to sign the contract with a prefabricated house provider.

The framework data:

Plot of land already available (received as a gift) including my parents' house (transferred to me without any residential rights). According to the probate court, a value of 170,000 EUR. I want to build my prefabricated house directly on this plot of land.

I have already completed a large part of the civil engineering work myself. The house price including the slab is approximately 300,000 EUR.

I have 70,000 EUR in equity. Therefore, I would need to finance 230,000 EUR.

My girlfriend (currently not yet married, but planned, with 2-3 children to come in the future) currently earns about 2,000 EUR net.

I myself (finished my studies only 3 years ago, work as a sales engineer in the automotive industry, IG Metall) currently earn 2,800 EUR net (BU already deducted, increase to over 3,000 EUR net by 01.01.2020). So, we currently have 4,800 EUR available per month. In the early days of the children, I would still benefit from the better tax class.

Now I am still wavering about the financing.

1. Pay off 230,000 EUR in 15 years with monthly payments of 1,100 EUR and always repay >2,000 EUR with special repayments and, if necessary, subsequent financing.

2. Split into two loans (15 and 20 years) right away and secure the safety due to the good interest rate situation.

Do you find the 1,100 EUR plus special repayment realistic?

1. consider who is financing and is registered in the land register. If your girlfriend is supposed to co-sign, hopefully she will be listed as a co-owner in the land register.

2. you are young and interest rates are low. I would therefore always go for 15-20 years and repay what is painless. Banks require a minimum of 2%. With 230k you can also go up to 3-4%. If you don’t do this, you will never adjust or you tend to skip the special repayment...

Since we are not married yet, she will not be included for now.

If I assume that the interest rate will not exceed 5% in 15 years, then in my opinion it is worth taking the risk of not locking in the interest rate for such a long period and hoping for special repayments. In the last two years, I was able to save 15k each year (without my girlfriend) and back then I earned 500 euros less net.

Or I go with a repayment of 950-1000 euros over 20 years, can then make earlier special repayments, but in terms of interest I still lose quite a bit if I finish earlier. Really difficult...

Since we are not married yet, she will not be listed for now.

think about your plans carefully and calmly. Not only does a later transfer incur new real estate transfer tax (then on land and house) as soon as there is a mortgage on it, the banks get involved in the deal. If a loan is then running, there may be even more hurdles.

If I assume that the interest rate will not exceed 5% in 15 years, then in my opinion it makes sense to take the risk of not locking in the interest rates for quite that long

Of course, you have to calculate that individually for yourself. I recently calculated it with my own data using interest rates for 15 and 20 years and came up with a cap rate of 3.8%. If the interest rate in 15 years is below that, I save money due to the initially lower interest rates; if it is above, then the additional costs in the last 5 years consume the savings.

Since we are not married yet, she will not be listed for now.

If I assume that the interest rate will not exceed 5% in 15 years, then in my opinion it is worth taking the risk of not securing the interest rates for quite that long and hoping for the special repayment. In the last two years, I was able to put aside 15k each year (without my girlfriend) and back then I earned 500 euros less net.

Or I go with 950-1000 euros repayment over 20 years, then I can pay it off earlier with special repayments, but I would miss out on quite a bit of interest if I finish earlier. Really difficult...

Then your girlfriend would be poorly advised to co-sign a financing. She would be personally liable for a property she does not own.

I want to sign the financing alone for now, since we are not married yet.