How much house can we afford?

Hello,

another way to include the life insurance in a financing is a loan in the amount of the expected maturity benefit of the life insurance at the due date.

This loan is not repaid continuously – during the term, "only" interest is paid. When the life insurance matures, the loan is repaid in one lump sum.

However, this type of loan is not without issues! On the one hand, you always pay the high initial interest rate (since it is not repaid), which is useful for example with rental properties, as I can usually claim the interest as a tax deduction. On the other hand, the maturity benefit of a life insurance is not guaranteed. Because many life insurance providers have significantly downgraded their "return promises" in recent years, many owners of such contracts are now faced with the problem that the maturity benefit is not sufficient to repay the loan.

Since the performance of a life insurance depends not only on the currently favorable interest rate level but also on stock market prices (insurance invests in securities), it is not 100% certain in the future to predict the maturity benefit of a life insurance.

Regards,

Dirk

Ah cool, thanks for your good explanation, is this applied frequently or is it rather an exception? It might be an emergency idea to fall back on if a dream ever does come true.

However, with this model you have to pay attention to one special feature:

If your life insurance was concluded before January 1, 2005, you still receive the maturity benefit tax-free after a term of 12 years.

In the case of a so-called "tax-damaging use," which certain secured loans can also belong to, it is possible that your tax office fully taxes your life insurance.

If this financing option is being considered, you should definitely contact a competent tax advisor and the tax office before concluding the loan agreement!!!

Regards,

Dirk

Hello

For a private house, I would never use an existing LV! At this interest rate level, it is a MUST to repay! Banks now also require a 2% repayment in the annuity. This still corresponds to a total term of about 30 years.

Hello

I would never use an existing life insurance policy for a private house! At this interest rate level, it is a MUST to repay! Banks now also require a 2% repayment in the annuity. This still corresponds to a total term of about 30 years.

Using such an existing life insurance policy to "utilize" it is no different than using an existing building savings contract for financing. In both cases, nothing is repaid at first. On the contrary, the interest rate on the balance of the life insurance policy might even be slightly better than that of the building savings contract. Of course, this assumes that the life insurance policy is capital-forming and not just a risk life insurance.
The risks have already been pointed out by Doc.Schnaggl.

The background of this financing method with life insurance used to be a tax advantage in the corporate sector. The interest could be deducted as business expenses, while the contributions to the life insurance could additionally be deducted as special expenses. Since this "tax loophole" has been closed, this type of financing is no longer common today.

I’ll briefly jump in on this topic:

Another way to include the life insurance in financing is a loan in the amount of the expected maturity benefit of the life insurance at the due date.

Since the value development of a life insurance policy does not only depend on the currently favorable interest rate level but also on the stock market prices (the insurer invests in securities), it is not 100% certain in the future to predict the maturity benefit of a life insurance policy.

Doc is absolutely right. Therefore, one should only calculate with the guaranteed sum of the life insurance. As a rule, banks nowadays only use the guaranteed sum as the basis for their calculations and not the projected maturity benefit.

However, with this model (pledging a life insurance), one must pay attention to a particularity:

If your life insurance was concluded before January 1, 2005, you still receive the maturity benefit tax-free after a term of 12 years.

In the case of a so-called "tax-damaging use," however, which can also include the collateralization of certain loans, it is possible that your tax office fully taxes your life insurance.

If this financing option is considered, you should definitely contact a competent tax advisor and the tax office before signing the loan agreement!!!

Dirk

On the one hand, one should also consider that the bank applies a security deduction of 20 - 40 % on the amount paid in so far when pledging a life insurance. The valuation of the collateral is therefore lower than the actual existing amount.

For this reason, and to avoid tax issues, it was recommended to us to take out the loan with the lowest possible repayment. The term of the loan and the term of the life insurance are the same. This way, the sum paid out from the life insurance at the end of the term can be used for repayment. The advantage – the above-mentioned disadvantages (security deduction and possible tax issues) do not come into effect, and if I manage to repay the loan otherwise (e.g., through salary increases via special repayments), the life insurance (as originally planned) would still serve as retirement provision.

Last but not least: In my opinion, the above statements only make sense for existing life insurances that are continuing to be paid into anyway. Taking out a new contract at the currently lowest guaranteed interest rate for later repayment makes no sense in my view. With a new contract, you only get the historically lowest guaranteed interest rate on the balance (and only on the savings portion) but would at the same time pay 3.5 - 4 % loan interest.