Fixed interest period and loan term for 10, 15, or 20 years?

: You are not a banker, are you?

Please don’t be mad at me, but your "recommendations" here may be perfect for you, but for other builders they could possibly end badly.

First of all, interest rates are currently not lowest for a loan with a 5-year fixed interest period, but still for a variable interest rate.

Furthermore, your calculations are very rough – a 0.5% interest difference means about EUR 40.00 rather than EUR 50.00 per month for a loan of EUR 100,000.00 (EUR 41.66 to be exact).

How you yourself want to arrive at a savings of quote "tens of thousands of euros" within 5 years with the EUR 50.00 per month you assumed is absolutely beyond me. EUR 50.00 x 12 months x 5 years still equals EUR 3,000.00 in my calculation – which is still miles away from tens of thousands (starting at twenty thousand).

You ignore the risk of massive interest rate changes except for a brief aside without explanation – more than risky...

Why one cannot make massive special repayments in the first years with a long-term interest rate to reduce the interest burden is also not really clear to me...

The idea of recalculating after 5 years is quite charming, but after 5 years you also no longer have a new house and must accept corresponding deductions.

Regards,

Dirk

I recommend a 5-year fixed interest period. That’s where the interest rates are lowest. You should make as many special repayments as possible in the first 5 years and can then refinance at 90% or even 80% loan-to-value afterwards, which saves a lot of interest again. Over 5 years, you save tens of thousands of euros in interest, which is better invested in repayment. Especially with 100% financing, which we also did by the way, the interest portion makes up a huge chunk at the beginning. You should keep this as low as possible, and that can only be done with high repayment rates and a short fixed interest period. After the first fixed interest term, you can see whether to take out a longer one.

However, you then have

- a better loan-to-value ratio already after 5 years – extreme savings!
- the opportunity to use larger inflows directly for repayment and not only after 10 years – shortens the term!
- massive interest savings in the most expensive phase of the loan, since a 5-year instead of a 10-year fixed interest period often makes about 0.5% difference.

To illustrate: with a 100,000 euro loan, a 0.5% interest difference means almost 50 euros per month!
Securing “cheap interest rates” in the long term that then aren’t cheap anymore because long-term also means an interest premium, is above all one thing: expensive.
Personally, I find more security in reducing the outstanding debt as quickly as possible than in knowing that my very high remaining debt is burdened with the same interest for at least 20 years. Interest hikes are a manageable risk in today’s economy, unlike unemployment, divorce, illness, death, etc., where a long fixed interest period unfortunately doesn’t help.

And one more word about maternity leave: please don’t be too sure about that. Employers who want to get rid of a mother can do that too. For example, my ballet teacher was “talked out” after her first child by being transferred to a position (she has NO right to be rehired in the same position!) where constant business trips were required – with absences of sometimes weeks. She quit voluntarily. Also conceivable are posts with working hours until late at night or transfers to other branches with long commutes or even the need to move. Your sentence about maternity leave is unfortunately quite naive and unrealistic. It may be that your wife is lucky with her employer, but if it goes as described above – and all of this is legally correct – I would not count on that income so firmly. The bank doesn’t calculate it in at all.

We don’t often see eye to eye :)
But it would be bad if everyone had the same opinion. ;)

Generally, Elina is right. However, nobody really knows how interest rates will develop over the next 5 years. I think that five years ago, few predicted that the base interest rate would reach such a low level.
It could just as well be the case that compared to a 10-year financing, you are currently saving the 0.5% mentioned by Elina, but in 5 years, interest rates have generally risen by 1.5%. We don’t have a crystal ball.

In addition, Elina’s variant assumes that you actually have the possibility to make (high) special repayments annually. To pick up the example again: with a 100,000 loan, 0.5% makes a difference of 500 euros in interest. Provided that you consistently use the 500 euros saved p.a. for higher repayment, after 5 years you will have repaid an additional 2,500 euros plus compound interest, which you won’t have to pay off later. Whether this 2,500 saving (without additional special repayment) really helps you so much with the conditions in the event of an extension, I find hard to judge.

Which fixed interest period is sensible for you?
In my opinion, this depends on your personal sense of security, your desire for planning certainty (whether to deal with the topic again in the short term and reset or plan long-term with the same amount), as well as your personal circumstances (can you even make special repayments, how are your financial conditions likely to change in the future).
Of course, the interest difference plays a role too. It’s up to you how much importance you assign to this.
Most banks offer the possibility of special repayments from the outset.

By the way, we have split. KFW can only be concluded with a maximum of 10 years fixed interest. The second largest loan has a 15-year fixed interest period and the large chunk 20 years. We also follow the plan that the KFW can be fully redeemed after 10 years through the balance of an existing home savings contract (so not newly concluded), the saved rate then runs in the 15-year loan, and its savings at the end increase the repayment on the 20-year loan.
For US, long-term planning security was important!

Regardless, there is always the option—if the conditions are actually better after 10 years—to use a special termination right.

I can only agree with the last paragraph of . Although there is a right to rehire after maternity leave, there is no claim to the same workplace/area as before. “Nasty” employers could exploit this cleverly.

and once again my suspicion from the other thread is confirmed - same train of thoughts :cool:

I join, even without a compliance function, but as a risk controller, the two pioneers.

In short: There is no universally valid statement about which interest rate is better for whom and how.

Cf: [Baufinanzierung eines gewissen Herrn Wulff]... Outcry throughout Germany... I found the option quite charming given his income.

I would also strongly base the loan term on the remaining debt and your feelings. What use are good interest rates if after 10 years you still have a very high remaining debt? The problem is also that the value of the property will change and thus the loan-to-value ratio. That can then be a completely different value. This can be advantageous, but it can also backfire quickly. It is important that in the end you have a good feeling about the concluded financing and can sleep well. It must not be tight under any circumstances and cause sleepless nights.

The important thing is that in the end you feel good about the completed financing and can sleep peacefully. It must not be tight under any circumstances and cause sleepless nights.

My personal experience is that the options for special repayments are greatly overrated. When I think about all the purchases that will come up in the next few years. At first, you say you can continue to use/keep the old furniture/curtains/lamps/decorations/pictures, etc., but then in the new house you buy new instead of paying off more. And when I think about what the outdoor facilities and garden consume in "huge sums." I only know one family that consistently made (special) repayments in the first 5 years but forgot to build sufficient reserves. When the husband became unemployed, they had to apply for housing benefit and don’t know how long they can still keep the house – now with a child. For me personally, security was much more important in the financing, and I was willing to pay a higher interest rate for that. (With Elina’s financing model, I WOULD NOT be able to sleep through the night o_O)