Dear community, I would like to get your opinion on the topic of a home savings contract. I know this has already been discussed here at one point or another, but mostly with manageable remaining debt.
In 2020, we got a really good interest rate, which unfortunately was only lockable for 10 years. The surcharges for longer terms were relatively high, and at that time the interest rate turnaround was not yet in sight. I also understand that from today's perspective this was not smart, but it can't be changed now. We set the repayment relatively low because we wanted to use the remaining available money for special repayments. Also for security, in case something unforeseen happens.
Total loan amount: 770,000 euros Divided into three parts: - Annuity loan through the bank: 530,000 euros - term 10 years - repayment 2% - interest rate 0.55% - 2x KfW loans (due to 2 residential units): 240,000 euros - term 10 years - interest rate 0.95% (+ repayment subsidy 36,000 euros) For the bank loan, an annual special repayment of 25,000 euros is possible.
Remaining debt after fixed interest period: probably around 570,000 euros.
Now the fixed interest periods will expire in 2030 and we would have to continue financing at the then current interest rate. No one knows today how that will look in 2030. The bank has offered us a home savings contract from the LBS. I know the reservations and costs for a home savings contract, but would still like to hear your opinion.
Building society: LBS Südwest Home savings tariff: ZukunftPlus Credit interest: 0.01% Closing fee: 1.6% Nominal interest rate: 1.19% (effective 1.54%) Repayment rate: about 1,000 euros
Total costs (including interest): about 7,000 euros. During the payment phase, various models were proposed to us, either with monthly installments or annual payments.
The idea now would be to secure part of the remaining debt (e.g., 200k€) through the home savings contract with the interest rate of 1.19%. The remaining amount we would then finance at the future interest rates.
We could afford the 25k€ special repayment per year through our salaries. If we conservatively assume 20k€, three options would result: 1) Special payment on the loan -> I reduce the remaining debt by 140k€ and then finance 430k€ at the future interest rate 2) Home savings contract -> I could secure 200k€ (i.e. 55% of it) with 1.19% interest (costing me about 3.2k€) and then finance 370k€ at the future interest rate 3) Invest -> would result in about 20k€ "profit" at a very optimistic 5% interest. With this I reduce the remaining debt by 160k€ and finance 410k€ at the future interest rate
What is your opinion on this? Have I overlooked something? And are there currently better home savings contracts on the market compared to LBS?
Thanks for your answers.
1) This is the safe option. Here you are also not tempted to consume saved/invested money in between. 2) I have no idea about that. 3) You probably mean risk-free 2.3% currently. There is no 5% that is risk-free.
If the invested money doesn't tempt you, then I would use option 3.
I am currently practicing option 1 myself with 10% repayment p.a. (special repayment 5% & repayment 5%) and sleep quite well with it, even though I have an interest rate of 1.68% and could have more return with an MSCI ETF. That's not so important to me.
My neighbors started building 4 years earlier in the development area and one or the other is already talking about being finished in 4-5 years. Honestly, the prospect of being financially free sounds tempting to me personally and that is more important to me.