Hello everyone,
we currently want to finance €278,000 through a bank and have received the following offer.
€50,000 KFW Home Ownership Program
€128,000 Deferred Repayment Loan
KFW:
1.4% nominal interest / 1.41% effective. 10 years fixed interest period
Payment: €174.90 with remaining debt
Would probably repay the KFW later with an already existing building savings contract (depending on interest rate)
TA: Loan
Phase I
1.8% nominal interest / 1.87% effective
Payment €893 (€342 for interest and €551 for saving)
Interest rate for the saving 0.10%
Duration 16 years 5 months
Phase II
Payment remains €893
2.85% nominal interest / 3.10% effective
Duration 13 years and 8 months
Costs for interest and other fees for the TA loan for the entire term amount to €95,591
I assume you made a typo in the amount stated for the TA loan? €228,000
I recalculated the TA loan using Excel:
1st Phase: €67,374 interest expense
2nd Phase: Based on a repayment of approx. €110,000 (accumulation €108,547 in 16 years and 5 months plus minimal interest yield) results in an interest expense of €25,657.49 for a €118,000 loan at 2.85% interest
(possibly I estimated the accumulated part a few euros higher - then the loan/interest expense would slightly increase)
Total interest expense: €93,031.49
For fun, I also calculated the second phase with the effective interest rate (all fees for the loan phase 2 should be included in the interest rate). The interest expense (including phase 1 interest) would be €95,982 - slightly above your stated value.
However, no building savings contract completion fee has been included here yet. For a €228,000 building savings contract, the completion fee is certainly > 1%.
I have been to several banks now, but if I receive a fixed-rate annuity loan for 30 years like the following, it is not cheaper for me
Nominal interest rate 2.58% / Effective 2.63%
There I pay a total of €119,944 in interest and monthly it costs me €1100
I wonder where it should be cheaper then.
I also used Excel here.
1100 x 12 = €13,200 annuity (of which 2.58% = €5,882.40 initial interest expense and €7,317.60 initial repayment p.a.)
(I have not considered the (negative) monthly compound interest effect that would make this slightly cheaper.)
With a monthly payment of €1,100 at the posted interest rate, you end up with a term of over 23 years and an interest expense of €77,726.54.
So you would be finished about 7 years earlier and have about €15,000 less interest expense.
You should not compare apples with oranges.
If I calculate now with a monthly burden of €893, I come to about 31 years term and an interest expense of €106,882.78.
There you would be right (as long as you do not want special repayments). The term and interest expense are worse. However, I would like to refer again to the possibly not fully disclosed / named fees for the building savings contract.
Furthermore, you should perhaps actually consider a different fixed interest period here. If I calculate for 20 years an assumed rate of 2% interest and from this point 4%, the final result is just under 29 years term and about €81,000 interest expense.
(2% for 15 years = over 30 years term and €98,000 interest)
Have now calculated back and forth for a while.
1. Your second example does not fit. At the stated payment, you are clearly finished earlier and would have less interest expense. (Logically – the repayment is higher)
2. It would be useful to play with different fixed interest periods for annuity loans.
By the way: I find it interesting in your suggestions that the interest rate of the building savings contract with 2.85% for almost 14 years is higher than the annuity loan with a 30-year fixed interest period.