Tentakel
2017-10-09 14:41:25
- #1
Well, a classic decision between an annuity loan and a bullet-financed building savings contract. There was already a thread about this. I'm really not a financial expert, but my opinion after researching our single-family house financing:
Option 1 has good repayment but no security. After 10 years, if interest rates rise massively, you have a problem.
Option 2 has the disadvantage that the main part of the total installment must flow into the building savings contract to make it ready for allocation. There is also no guarantee from the building society that the building savings loan is ready for payment (but it has been very secure in the past). That means with the annuity loan, not much is repaid after 10 years. The advantage is, if in 12 years the interest rates are still this low, you can forgo the building savings loan and take out a loan instead.
We faced a similar decision and eventually split the loan into an annuity loan and a building savings contract. We paid attention to an acceptable initial repayment for the annuity loan of about 2.5% and got the bullet loan for the building savings contract much cheaper, so the "losses" from the lower repayment and the fees were offset. Whether that was a good idea, I am still unsure ;-)
Here I see the big disadvantage of option 2 being the low repayment in the annuity loan and the costs of the building savings contract are also not compensated, so in my opinion, option 2 is not "safer" than option 1.
Option 1 has good repayment but no security. After 10 years, if interest rates rise massively, you have a problem.
Option 2 has the disadvantage that the main part of the total installment must flow into the building savings contract to make it ready for allocation. There is also no guarantee from the building society that the building savings loan is ready for payment (but it has been very secure in the past). That means with the annuity loan, not much is repaid after 10 years. The advantage is, if in 12 years the interest rates are still this low, you can forgo the building savings loan and take out a loan instead.
We faced a similar decision and eventually split the loan into an annuity loan and a building savings contract. We paid attention to an acceptable initial repayment for the annuity loan of about 2.5% and got the bullet loan for the building savings contract much cheaper, so the "losses" from the lower repayment and the fees were offset. Whether that was a good idea, I am still unsure ;-)
Here I see the big disadvantage of option 2 being the low repayment in the annuity loan and the costs of the building savings contract are also not compensated, so in my opinion, option 2 is not "safer" than option 1.