Introduction to Construction Financing

Nonsense! Under the current conditions, lock in the interest rate for as long as possible. At least 15, better yet 20 years. The surcharge is ridiculous compared to sleepless nights after 9 or 10 years.

That is such a huge generalization that can also cost a lot of money. You should always consider how big the risk actually is and to what extent you might even have to reckon with the loss of the property. Opposite that are corresponding opportunities.

With his remaining debt of €165,000 and the monthly payment of €1,500 = €18,000 p.a., the annuity in the follow-up financing would have to be >9.16% p.a. Would you really need to secure that?!
If yes, then try to get an offer for 15 years fixed interest or even a full repayment loan.

You should also not forget that higher interest rates always come with corresponding inflation, which practically helps with debt relief. 4% interest with 2% inflation is not really worse than the situation we have now.
Of course, 1.5% interest now and significantly rising inflation in 2-3 years wouldn’t be bad either ;-)

If you shy away from the risk of follow-up financing after 10 years because you just can’t know what will happen then... you could also make a virtue out of necessity: finance for 5 years to take away the fear of the "distant unknown". If the interest rate level really shoots through the roof, you are always within striking distance for a forward loan.
Radical approach, sure, but is it really so far-fetched to perhaps put aside overestimated fears?

But that’s something everyone has to decide for themselves. Do I really need 20 years of certainty? I think not everyone is that type (nor is every home builder).

P.S.: Someone should mention that 1.16% for 10 years should be considered superb conditions. Large equity share there? Variants 2 and 3, as you can guess from my posting, I also consider completely off base.

Nonsense! With the current conditions, take an interest rate lock for as long as possible. At least 15, preferably 20 years. The surcharge is ridiculous compared to sleepless nights after 9 or 10 years.

Right, you are talking nonsense.

Interest rates are historically low.

Correct (they have been for the last 10 years anyway)!

I consider predictability to be much more important,

Depending on the remaining amount, that is totally overrated.

than a few percentage points better interest rate after the decimal point.

Agreed.

And as already mentioned above: Building savings contracts are the biggest nonsense for you! The bank earns well from it and you have increased risk (keyword allocation) and a negative return. Account management fees and closing fees (usually 1%) cost money

I agree, with the caveat that depending on the personal situation, it can make sense.

and only brings the bank a positive cash flow

Oh yeah... you know about cash flows? I don’t see a cash flow except for a commission. The bank certainly earns more on such a nice long-term loan (and here there really is a fat positive cash flow).

...the interest is eaten up several times over. Stay away from it!

Also here, fundamentally correct, but not always.

First of all, thank you very much for your differentiated opinions. It is nice to read that the topic of the building savings contract is not only viewed critically by me.


I agree with you... everyone understands a simple annuity loan. "More complicated" structures (building savings contract, Riester, ...) can certainly be useful in individual cases, but they are also difficult to understand or to compare with each other in case of doubt.


I thought the same. The surcharge for a 5-year longer fixed interest period is around 40 percent, which in my opinion is too much. The interest rate calculation confirms my feeling.

The Sparkasse has also just come down by 5 basis points and now offers me 1.07%/1.11% for a 10-year fixed interest period. I think my decision is made... it will probably be option 1.


We are using equity of about EUR 100,000 (including land).



I also sincerely thank you both for your opinions and explanations.

With your numbers, the building savings contract doesn’t make sense. Whether 10 or 15 years is really hard to say. With the same installments (€1500), a 10-year fixed interest period would be worthwhile for a follow-up financing rate below 4%. At the moment, that’s unrealistic. But 10 years ago, we were above that. However, the remaining debt after the end of the fixed interest period is double the amount. I would try to negotiate better terms with the bank for 15 or 20 years. 1/10 now is 5/10 with the follow-up financing.

The remaining debt was too high for me after 10 years. Therefore, I agreed on 15 years. Just as a hint... If the interest rates remain low after 10 years, I can terminate the loan between the 10th and 15th year and possibly refinance under better conditions, for example for a 10-year term.