These assumptions are very much tied to the current situation, so "numerically" not stable – the calculated optimal equity ratio (optimal solely in terms of money – all other factors like security, risk, quality of life are hard to quantify) fluctuates significantly with only small changes in your assumptions. So everyone has to look closely at their own situation (for example, I still have old savings contracts with over 4% interest) – and also take all non-monetary arguments into account. By the way, I consider these more important than a few percentage points of possible plus or minus.
I would like to calculate the optimal equity ratio but must admit that I lack the necessary mathematical knowledge. If you could put that into a formula, I would be really grateful.
Therefore, I have tried to approach this by comparing certain assumptions with each other as an example. Of course, it is easy to criticize these assumptions, but then please be specific so that one can actually calculate it. So far, mentioned are the interest on savings, which I actually set at 3%, much too high, and the construction prices, which in my calculation also include prices for existing properties (2014-2015), which are, for example, less affected by increases due to the Energy Saving Ordinance. However, both are factors that tend to shift the result rather towards "against high equity."
For the PI, it depends on the sums (debts) whether it is "worth it" or feasible or not. You certainly cannot say that so generally. The insurance definitely costs a bit, but by no means as much as you suggest. Nowadays, everyone is somehow insured (yes, I have my house and my life insured), and the accumulation of equity could also be understood as insurance.
Whether the PI is worthwhile is probably very individual (e.g., temporary unemployment vs. permanent disability). However, I assume that with a continued reduced income and >100k debts, the PI is rather used.
What the security via equity costs, on the other hand, can be roughly calculated: rent payment during the saving phase + increased construction prices – interest on capital (depending on the market situation, one may save a little due to a lower interest rate through the higher equity, or pay more because interest rates overall have risen in the meantime).
In particular, no one yet owns a functioning crystal ball for the future. For example, it might also be the case that with rising interest rates in 6-7 years, many who built without equity will have problems with follow-up financing, and houses will become quite cheap. Lucky is he who then has equity and can strike. Who knows? Or something else happens? What would have been financially better is only known for sure afterward!
Correct, no one can see into the future. But one could probably agree that interest rates can hardly fall by another 1% in the future, while upward (almost) anything is possible. By the way, in my calculations, I assumed that a correspondingly long fixed interest period is used; otherwise, even the 110% borrower would not pay 3.13%. The "interest rate risk" thus lies almost exclusively with the "saver," as they do not know how interest rates will look at the end of their saving phase. Whether, in the meantime, real estate prices crash, the state introduces new regulations/subsidies, one maybe wins the lottery, gets divorced, has quintuplets, or the zombie apocalypse breaks out cannot be known in advance – but this affects everyone at all times.
I directly spent money, thus ensured myself against a "distress sale" with certainty. But I do not miss that money.
I think you misunderstand me. When I talk about expenses in this context, I do not mean the equity itself but the costs involved in saving it (see above). And this you (and every non-millionaire) very much do miss, and that is what I was referring to when I said that on the long list of "safeties" (you can also call it "life-essential costs in the future") some things are much more relevant/probable (e.g., purchasing a new car).
With less equity, I would have had to finance the car, and that definitely would have been more expensive overall.
I have already read this here in the forum in another context. You DID finance the car because you still owe the bank money for the house. That is a problem every homeowner faces; all money spent during the repayment phase is burdened with interest, and the longer it "sits," the more expensive it becomes.
Otherwise, another argument is of course flexibility, also during construction. You don't have to run after invoices, approvals, and payout requests, can almost always get the early payment discount (sometimes more by negotiating), don't have to count every euro, collect every hardware store invoice for self-performance, and so on. You can also pay some things in cash with the craftsmen.
Good point!
See above, the "calculations" or the assumptions are not universally valid but special examples. We have explained many reasons to you objectively. I'll put it very clearly: money is not everything here either (if it were about calculation, no one would build a house). I rate many risks highly here (compared to the €€€). I believe others do so too – otherwise, there would be no insurance.
Of course, no universally valid calculation can be made; every lender, every debtor, every house, every day is different, and accordingly, there are many individual financings. However, the examples were supposed to represent a plausible case in their structure, based on which considerations about the "optimal" financing concerning equity can be made. My primary concern was to question the dogma "You need X% equity."
I understand that security is important to many people. I am only skeptical about its extent. How many people here, for example, do not have (adequate) disability insurance simply because it is too expensive for them. But when it comes to lying to themselves in real estate financing, money (in the name of security) suddenly no longer matters (I am not referring to you!). How does that fit together?