What is the right strategy?

Hello,

we want to buy a plot of land and after the one-year development period build a single-family house on it. These are the facts:

[*
Plot price including incidental costs: approx. €150,000
[*]House price: approx. €350,000
[*]Other incidental costs not included above: approx. €25,000


--> Total: €525,000


[*]Equity immediately available approx. €145,000
[*]Equity in 2020 approx. €20,000 (interest rate 3% or more, so the money remains invested)
[*]Income:
[LIST]
[*]He (33 years old, engineer): €3,380 + holiday and Christmas bonus, usually €3,780 due to overtime

[*]She (33 years old, employee): €900 + €180 child benefit


[*]Currently monthly expenses excluding basic rent: approx. €2,200. Disposable income: approx. €2,200

I currently have the following plan:

[*
Purchase of the plot end of 2014 with use of €140,000 equity and €5,000 reserves.
[*]Taking out (consumer) loan 1:
[LIST]
[*]€10,000
[*]3.7%
[*]Term 12 months (01/2015–01/2016)

[*]Installment approx. €850


[*]Start of house construction beginning of 2016 (loan 1 is repaid)

[*]Loan 2 (KFW153):



[*]€50,000
[*]1.00%
[*]Fixed interest and term 10 years

[*]Installment approx. €280 (results in a term of 16 years)

[*]One-time special repayment with the €20,000 equity in 2020 (shortens the term to 10 years)


[*]Loan 3 (annuity loan):



[*]€325,000

[*]possibly 3.0%?

[*]Fixed interest for 30 years
[*]Installment €1,100
[*]Annual special repayments up to 10% of the loan amount without interest surcharge possible

From the time we move into the house, I will pay about €1,380 in total installments, whereby after repayment of the KFW loan its €280 installment flows as a special repayment into loan 3.

Further money not needed as reserves flows annually as special repayments to shorten the term of loan 3 to 30 years.

My parents-in-law own 2 houses. Sooner or later we will inherit one of them. This should further increase the special repayments.

We want to have a second child in the next few years. So my wife’s salary will be lost for 3 years, if you disregard parental allowance. I would compensate this by adjusting the installment of loan 3 to €700, so that the total installments of both loans amount to about €1,000. In return, I have to make corresponding special repayments in the “fat years” to catch up on the backlog.

In general, I want to keep the fixed installment rather low so that one can react better to unforeseen events in life and rather ensure a high repayment rate in the planned years through special repayments.

What do you think of our situation and our plan?

When I think it over, I come up with the following points myself:

- The house that I will probably inherit at some point, I just want to keep in the back of my mind as security, but not use as justification for a risky financing.
- For loan 2, I have so far not considered a first year without repayment. I think I need that if I build massively, so that I don’t have a double burden. If I still want to be finished after 10 years, my rate for loan 2 will increase to €300.
- When loan 2 is paid off after 10 years, I would apply the €300 per month as special repayment on loan 3. So €3600/year.
- All in all, I never get a satisfactory feeling with loan 3, which is probably because I am uncertain about both the construction costs and my monthly expenses. The construction costs are roughly planned as follows:

Land price: €136,000
Real estate transfer tax: €6,800
Notary costs: €2,700
House 150m², 2 floors, solar system, waterproof basement, chimney, electric shutters upstairs, electric blinds downstairs: €300,000
Garage 4x6m: €10,000
Ventilation system: €10,000
Extra charges for house automation (shutters, lighting): €10,000
Upgrading: €10,000
Outdoor facilities: €10,000

Excavation/refill: included in the house price
Surveying, site plan: €2,600
Removal of excavated soil: unclear
House connections: €7,500
Construction power, construction water: included in the house price
Kitchen: €15,000

Unexpected expenses: €10,000 should be saved as a reserve until the start of construction or withheld from the equity.

Expenses:
Additional costs €150
Electricity €90
Cars (insurance, gasoline, tax) €430
Food, cosmetics €650
Clothing €350
Telephone, broadcasting fee €90
Liability, dental supplemental insurance €55
Savings rates €80
Kindergarten, ballet €135
Doctor visits, medication, contact lenses, hairdresser €65
Miscellaneous €150
Total: €2245
-> Disposable income approx. €2200. Of that, I would like to use €500 to €700 for saving and consumption. So that results in a maximum monthly rate of €1500-1700.

After consideration, I correct loans 2 and 3 as follows:

[*
Loan 2 (KFW153):
[LIST]
[*]€50,000
[*]1.00%
[*]Fixed interest rate AND term 10 years, repayment starts after 1 year
[*]Rate approx. €300 (results in term of 16 years)
[*]one-time special repayment through the €20,000 equity in 2020 (shortens the term to 10 years)


[*]Loan 3 (annuity loan):


[*]€340,000
[*]maybe 3.0%?
[*]Fixed interest rate AND term 30 years
[*]Rate €1250

[*]Annual special repayment up to 10% of the loan amount without interest surcharge possible (from the end of loan 2 at least €3600/year)

I think it would work like this. The monthly rate would always have to be around €1550.
If my wife is on parental leave, the rate for loan 3 will be reduced to €850 for 2 years. As compensation, more will be paid as special repayment through the additional earnings from overtime.

*Sigh*, please take a look to see if this more or less makes sense.

Hello,

First of all, just a brief statement from me on the topic of KFW, as I have little time right now:
Read up a little more on the KFW page. With a 10-year term and a grace period of repayment, you would be looking at a rate of about 500€ and not 300€. If the initially calculated term is supposed to be 16 years, you would have a higher interest rate. The planned special repayment does not matter at first.

Hello,

I would include the 10' in the large loan. With a 5% special repayment of 350k, you can make special repayments of up to 17k annually. Otherwise, a good starting position.

I would not fix the large loan at 30 years based on the data. Rather at 15 or 20 years. And then preferably higher repayment. You are already bringing a large part of equity with the property. If 30 years, then rather a full repayment loan. Overtime should not be factored in with the money you earn.

Thank you for the answers! , can you please briefly explain what you mean by "10'" and why you would do something differently. , could you also please explain to me why you would only choose a 20-year fixed interest period? I thought that especially when interest rates are so low, you should secure them for as long as possible.