Savings beginner with questions about the plausibility of the "rough" plan

In these cases, it actually doesn’t matter whether you end up “only” unable to repay 100,000, or significantly more — the property would have to be sold.

The question is whether the sales proceeds after deducting expenses (prepayment penalties, etc.) are greater or less than the remaining debt. If greater, one can (painfully) continue to live with the new income level. If less, one additionally has debt on their back and may possibly go bankrupt. Not everyone wants that (to imagine today). Therefore, with a high equity contribution, one can sleep more peacefully.

In other words: One has net assets because the house is worth more than the remaining loan amount. With high loan-to-value ratios, one must first repay intensively so that the remaining debt decreases faster than the value of the house to reach the “safe” zone.

Those who are not afraid of (personal) bankruptcy can, in addition to the 110% financing, also finance the kitchen and a new car. Then it no longer matters.

Of course, the rule always applies: debt is not a problem as long as the installment can be serviced.

Additional note: For the reasons mentioned, it is better to sell freely than to wait for the foreclosure auction. Unless it doesn’t matter anyway.

In other words: You have net equity because the house is worth more than the outstanding loan amount. With high loan-to-value ratios, you first have to repay intensively so that the remaining debt decreases faster than the value of the house in order to enter the "safe" zone.

That is exactly the crucial point for me as well. My house should bring in more than the outstanding debt from the very beginning in the event of a necessary sale. In our case, this is probably true. Especially in the current environment. We haven’t started building yet, but we could already sell our land now at a significant profit. That’s how it should be..

Regards, Steffen

I never said that one should just recklessly accumulate debt because it could be settled in the end through consumer insolvency. The starting point of this consideration is always a decent, thoughtful debtor with basically suitable conditions, who has gotten into financial difficulties through no fault of their own.

As far as "net assets" are concerned, you both assume that selling your house would bring in more than the outstanding debt. But what if that doesn't work out? Prime location and environment like today – probably not an issue... but what about a typical single-family home in a small town 10-15 years from now that would have to be sold within a month?

Moreover, this is not just about the mere decision to invest existing equity in real estate financing or not. The question is whether one is willing to first save this over 10 years (or more) and bear the financial burdens of buying a house WITHOUT being able to enjoy the benefits of the house during that time. To make it even more difficult, above a certain level it doesn’t even make sense to save that long (see calculations above), even if you never end up in financial trouble.

In short: "Peaceful sleep" is all well and good, but in view of a limited lifespan, do I really want to wait 6-7 years longer for my home just to avoid (in the "worst case," which is more likely) ending up in personal bankruptcy?
It may be that some still answer "yes" to that. I think there are other things on the mental "security list" that rank so much higher that money runs out long before that (insurance, retirement provision, children's education, etc.).

What a discussion again... I got a stair railing today even without having saved 10 years of equity for it - those are the real milestones in construction

But the calculation only works like this if construction prices were to increase by only 1.5% per year. Depending on the region and new requirements for construction execution --> energy saving regulations, this is likely to deviate significantly upwards.
Here near Hamburg, plots of land cost twice as much as they did 10 years ago. Our construction company regularly builds semi-detached houses for sale and sold them for €210,000 10 years ago and today for €310,000.

The calculation actually works even better if you assume stronger increases in construction prices, because then you naturally get less mortgage with the accumulated equity.

By the way, I got the 1.5% from the Federal Statistical Office and they also include real estate prices, so buying from existing properties - not everyone builds new.