Financing with a 35-year fixed interest rate

Hello, we (married couple, 26 and 25 years old, no children yet) are currently in the planning phase for our single-family house and are of course already looking into financing offers on the side.
Net income he = 2,600 euros
Net income she = 1,800 euros

Overall, we will have to finance around 315,000 euros. It has been clear to us for some time that with the current interest rate level we definitely want a rather long-term fixed interest rate.

Among other things, we have an offer from a bank for financing with a full fixed interest rate, that is a total term of 35 years. The interest rate would be around 2.5% and the monthly installment would be 1,100 euros. This of course means extreme interest rate security, 35 years of peaceful nights without fear of interest rate developments and still being "finished" before retirement/pension.

On the other hand, 35 years still sounds like a very long time. Also, unfortunately, the contract does not allow for any special repayments to flexibly shorten the term.

What do you generally think about this? Of course, we will also get other offers, including with shorter terms, and then compare.

We also have the fixed interest rate for the entire term, and that is absolutely the right thing for us. With [Sondertilgungen], which we can and do make according to the contract, we will be finished about 8 years earlier. However, we know exactly that we will never exceed the now known monthly payment. At that time, this cost us an interest surcharge of, I believe, about 0.3%.

[Sondertilgung] should be possible!

We also have the fixed interest rate for the entire term and that is absolutely right for us. With special repayments, which we can and do make according to the contract, we will be finished about 8 years earlier. But we know exactly that we will never exceed the currently known monthly payment. That cost us an interest rate premium of, I believe, about 0.3% back then.

Special repayments should be possible!

Regarding the interest rate premium, basically the security you buy with it, we would also be around 0.3%. As I said, what bothers me most is especially the lack of the option for special repayments. Sometimes you inherit something and then you cannot use it to shorten your term...

Pure matter of taste. I would currently prefer the 1.8% over 20 years (80% financing) because I think that with salary increases - inflation means the remaining debt in 20 years is worth about 40% less than today - so a remaining debt of say 120,000 sounds like a lot today, but in 20 years compared to today is like 70,000 remaining debt. I roughly calculated it: the interest rate would have to rise to 6-7% for me to pay the same installment for the remaining debt in 20 years as now (with you, the 1,100€). But since (hopefully) one earns significantly better in 20 years, the installment would have to rise to about 1,700€ if you take it as a percentage (e.g. installment = 30% of net income). I haven’t calculated that exactly now, but then interest rates would have to go up to about 10-12%. Which I seriously doubt, because the economy always needs consumers and not savers : ) And even if, then I would simply pay 30% of net income again in 20 years, also doable : )

You have a right to terminate after 10 years. Then you can cancel and repay the loan whenever you want. Especially in the first 10 years (usually it’s effectively 8 or 9 because from the start of the fixed interest period to the actual start of repayment already 1-2 years have passed) there is the least possibility for special repayments (of course this is not the case for everyone). And if there is still something left... just save up and repay after the first 10 years. You won’t add that much on. Two points to consider: Look at the difference in terms for a somewhat shorter fixed interest period. So 30 or 25 years... in the last 5 or 10 years the risk is anyway lower because the biggest part has already been repaid. The question is why fix it for 35 years if you plan to make special repayments... Or split it. Put the bigger part on the entire term (leave out the special repayment right and ask if you get a better interest rate for it) and a smaller part with 15 or 20 years, with a special repayment right.

Splitting into multiple financing packages is sometimes an option. 150K€ long-term and with a long fixed interest rate period (your rock in the surf) and the rest with shorter terms (~10 years) so you can use a possible inheritance well to pay off the remaining debt in one go. Basically split risk. If interest rates rise significantly, it only affects the smaller loans and doesn’t hit as hard.

Edit: face26 was faster