Special repayment in the loan contract - experiences with financing

Have you ever calculated that? In your approach, you prepay the loan with the lowest interest burden first. At the same time, you pay high interest on the loan with the long term. This way, you buy yourself a long interest rate lock on paper, but the outstanding balance after X years usually hardly decreases overall.

Unfortunately, I no longer have a current Excel spreadsheet; in most cases, it didn’t pay off for us. Especially since the outstanding balance didn’t significantly decrease even at the end of the long interest rate lock. You really have to look closely at which assumed interest rate increases lead to better or worse results. Unfortunately, human intuition often misses the mark badly here, since we simply can’t correctly assess exponential calculations.

Of course, the point of this plan is not that I pay off the highest interest rate fastest but that I can quickly pay off a loan completely in order to enormously reduce the loan amount quickly and after 10 years, a huge chunk of the monthly repayment amount disappears.

With interest differences of 0.2%, the interest burden is extremely low, so in my opinion, my risk of paying significantly more interest after 10 years is much higher. Then we might be talking not about 0.2% but, for example, 3%. If I then still have, for example, a remaining balance of €40,000 (instead of €0.00 if I prepay quickly) and pay 3% interest on that, it has a very strong effect.

Sure, in the end, I let the 0.2% higher interest run, repay the least there, and pay interest the longest – but for that, I have also taken out an interest rate lock of over 20 years so that I secure exactly that interest rate and can hold the loan long-term at that rate! Honestly, I doubt I can completely repay a €500k loan after 15-20 years :D

The differences in the current phase are so insignificant that, in my opinion, a risk assessment or a lower repayment amount is much more important and (should the interest rate be somewhat higher in 10 years) also much more economical.

Ultimately, I am also talking here about a correct risk assessment/freedoms through low amounts with possibly children, etc., which you don’t achieve if, for example, you repay both loans at the same repayment rate or even pay off the long-term fixed interest rate loan faster first.

The Kfw portion is handled by the bank that finances the rest. Even if you finance with the Kfw portion, only that one bank is listed in the land register. At least that's how it is with us now. Kfw is definitely interesting if you can take advantage of the subsidy.

Ok, I didn’t know that, but then you still have the disadvantage of not being able to make special repayments there. And with the new BEG there is the grant option so that you don’t have to use the KFW loan.

Why make special repayments at all? We repay 2% and invest the difference to a 3.2% repayment in the vanguard FTSE Allworld ETF and then repay the remainder at the end. At 0.79% interest, that doesn’t make any sense at all.

Why even do special repayments? We pay off 2% and invest the difference in a 3.2% repayment in the Vanguard FTSE Allworld ETF and then repay at the end. At 0.79% interest, that doesn't make any sense.

I transfer my money every month to such an African king. There I get 20% p.a. With that, I then repay at the end. Investing in ETFs is not worthwhile in comparison. I understand what you mean, but as far as I know, there's quite a leap in risk class between special repayments and investing in stocks.

I transfer my money every month to such an African king. I get 20% p.a. With that I then repay in full at the end. Investing in ETFs is definitely not worthwhile by comparison.

Sure, I know what you mean, but as far as I know, there is quite a jump in risk class between special repayments and investing in stocks.

I think you are a bit outdated in your knowledge. But first to pull out the pub clichés - no wonder there is no stock culture in Germany. Here are a few numbers.



Here is the return triangle of the FTSE AllWorld over the last 25 years - without the approx. 2% dividends p.a. it distributes. Show me a 15-year period in which you would have lost money if you faithfully executed your savings plan. So please - individual stocks or specialized funds or such are certainly another risk. An index fund that more or less represents the world economy is really a no-brainer. Of course, there is no excess return, but I certainly get more than 0.79% over a 10-20 year investment horizon.

Plus I keep my liquidity with me.

Feel free to also search on Google for the MSCI World return triangle

I think you are a bit outdated in your knowledge. But first pulling out the pub clichés - no wonder there is no stock culture in Germany. Here are some numbers.

Now I do feel a bit attacked. First of all: I fully agree with your approach. I will also waive the special repayment until I have paid off my KfW loan and invest money in ETFs until then. However, this does not change the fact that a special repayment directly and risk-free generates returns, while investing inherently involves a high risk class. A table about the returns of past years does not change that.