Financing with building savings in conjunction with loans

Hello everyone,

I have the following offer from a bank; the house is fully financed (360,000 €), equity of 130,000 € goes into ancillary costs and renovation.

Age: both 26, civil servants, monthly net income 4,320 € (the woman will only work half-time for the next 2/3 years)

Offer consists of two parts:
I.)
Loan amount: 108,000 €
Nominal interest rate: 1.5 %
Nominal interest rate fixed until: 2036
Effective annual interest rate: 1.53 %
Estimated end date: 2059
Initial repayment: 2 %
Special repayment p.a.: 5% (5,400 €)
Possible residual debt after fixed interest expires: 74,000 €
Provision interest p.a.: 3.0 from 12/2022
Monthly burden: 315 €

II.) Home savings contract
Loan amount: 252,000 €
Nominal interest rate: 1.3 %
Nominal interest rate fixed until: 2040
Effective annual interest rate: 1.78 %
Estimated end date: 2040
Initial repayment: 0 %
Special repayment p.a.: -
Possible residual debt after fixed interest expires: 252,000 €
Provision interest p.a.: 3.0 from 12/2022
Monthly burden: 753.1 €, of which 480.1 € is savings contribution

Monthly rate of about 1,100 €, which is supposed to be increased after a few years.

What is your opinion on this?

Too expensive. The costs for the building savings contract can already be seen from the high effective interest rates. No outstandingly long term for the interest rate. Get a pure loan according to scheme A. And compare with other providers. Your low risk as civil servants should also result in low interest rates from the banks.

We also have an offer with a [Bausparer]. Total amount 285 k, equity 22000

1. Bank 165 k at 1.65 % fixed for 20 years, 2% repayment. 500 € monthly
2. KFW 100 k at 1.18 % with [Bausparer] secured 430 €, of which 330 is savings contribution.

We have such a construct. We have a fairly high burden with a very short loan term (10 years). So we secured the low interest rates and safeguarded ourselves after 10 years with the [Bausparvertrag]. In one year it will be full and we can put the money into the loan for another 4 years to reduce the interest burden. We have done the math and saved quite a bit on interest.

A building savings contract is only worthwhile if you are very focused on interest rate security. I also had an offer of this type and compared it with the best alternative offer. The alternative offer would have had approximately the same remaining debt after 10 years as the building savings contract with TA after 14 years. The reasons for this are obvious. First, with the TA loan, nothing is repaid, which already costs quite a bit. Then the interest rate for the TA was significantly above the other offer while the building savings contract offered a meager 0.25%. So a negative interest rate differential deal over 14 years. And then there are little things like the 1.25% closing fee for the building savings contract. The only advantage the building savings contract would have given me is that it capped the costs for the subsequent financing at 2.5%. The problem is that interest rates would have to rise considerably above that – more like 4% than 3.5% – for the building savings contract to make up for that. I don’t see that happening at the moment, and even if it does... I can only imagine that happening with corresponding inflation.