Now a really basic question. Aside from interest rate developments that no one can foresee, what is the advantage of the longest possible fixed interest period? By doing that, I am taking away the possibility of benefiting from cheaper offers due to significantly lower loan-to-value ratios at some point, right? It makes a huge difference whether I have a loan-to-value of 90% or 50%. Or am I completely misunderstanding this?
I believe , we have already discussed this once. The advantage lies in the LONG-TERM planning security and the long-term assurance of a relatively low interest rate.
For example, if you choose only a 5-year fixed interest period, you currently get an interest rate that is (assuming) 0.5% p.a. cheaper (don’t stone me for the 0.5%, maybe it’s 0.7%). You put these 0.5% into additional repayment. You would have repaid about 2.5-3.0% more after 5 years. Certainly, you have the option to repay more additionally – but this possibility also exists with a 15 or 20-year fixed period – not to mention that most will probably not be able to maintain such significantly high special repayments permanently. A 20-year fixed period would of course make no sense if you realistically plan to have paid off your house after 10 or 15 years.
Back to the example: After 5 years you have to negotiate again. On the one hand, your loan-to-value ratio might not have dropped as much as you expect. But more importantly: you don’t know where interest rates will be in 5 years. If you are lucky, they are at the same low level as at contract inception. Then the lower loan-to-value ratio might give you an interest advantage, which you can then use for higher repayments. But if by then rates have risen, the interest advantage from the lower loan-to-value ratio will be eaten up by the higher base interest – you might even have to pay more.
With the short fixed interest period, you are actually speculating that interest rates will not rise significantly by the end of the fixed period. Only then, in my opinion, could your loan-to-value argument apply. Moreover: many shy away from (new) loan negotiations or find them stressful. Thus, those are happy to have peace of mind over a long period.