Financing, your opinion and experience are requested

I have an offer for financing of €150k for partial purchase & renovation measures.

The conditions are 1.25% interest and 6.55% repayment, which results in a monthly installment of €973.
Prepayment options are at 10%. The bank assured me that I will receive 20% of the loan amount paid out without submitting invoices. That would, of course, make it flexible, as I can do a lot myself and I don't have to submit every invoice.

Are there any pitfalls to watch out for here?

One cannot really answer that so broadly. The fixed interest period also plays a role, but I assume it is 10 years. You just have to see what you do with the remaining debt at some point, but it should be very manageable with only 150K.

10% special repayment sounds good, we only got 5%.

Otherwise it sounds quite reasonable, we have similar conditions.

What kind of pitfall is there supposed to be? With a 10-year fixed rate, the interest rate risk is completely irrelevant. I am surprised that you even got a special repayment.

Otherwise: No idea what problems could still arise, since we neither know the exact loan conditions, nor the bank, nor your written side agreements.

It's suitable for your needs due to the missing invoices. Banks hardly do that anymore for various reasons. As others have already written, the condition is difficult to assess because further information is missing. Compared to the very best conditions available with a 10-year fixed interest rate, very low loan-to-value ratio, and a high loan amount, the interest rate is only about 0.4-0.5% higher. Therefore, overall it's okay. At these numbers, the condition doesn't matter much anymore. With the high repayment and interest, 0.1 or 0.2 does not really make much difference in relation to the total interest costs incurred over 10 years.

Potential pitfalls might be: 1. The 20,000 EUR without an invoice could also mean that they are paid out as an advance without an invoice and before you receive more money, these must first be documented or the next ones... at the latest by the end you will need all the invoices. A typical bank that operates this way is Ing-Diba. 2. The repayment of 6-7% is not far from full repayment anymore.. Here you could choose full repayment right away with corresponding interest rate discounts that some banks offer. But beware: full repayment plans usually do not include special repayment options and no changes to the repayment rate, since these are discounted for repayment until the end of the fixed interest period.

But compared to the very best conditions, which you get with a 10-year fixed interest rate, very low loan-to-value ratio, and high purchase amount, it is only about 0.5% away

The problem for the banks, however, is that with a nominal 0.75% for 10 years, no money is made anymore. Refinancing, fixed costs, risk, etc., completely consume the yield. This will become a huge problem for many banks that absolutely have to do business at all costs.

This will be exciting anyway, what happens when inflation rises and interest rates go up. At least then the life insurers or pension insurers with their old guarantee promises are saved :D; well, who knows, maybe the next recession will come faster than inflation. Deflation would then also be conceivable.