Zinspoker - Long term or short term?

Hello everyone,

my wife and I have finally found a dream property. 250 sqm, Art Nouveau, renovated in a prime location.

Price of the property:
€599,000
Necessary renovation before moving in:
New windows and doors approx. €50,000

General information about you:

[*]Who are you?: Couple m/f
[*]How old are you? 34 / 33
[*]Are there children? No
[*]Are children planned? Maybe (1)
[*]What do you do professionally? He is an employee at a university, she is an employee in a company
[*]How many hours do you work? He 100%, she 100%

Income and assets situation:

[*]What income do you have (gross/net)? He €4700 net / she €2700 net [= €7,400]
[*]How much child benefit is there? €0
[*]Other transfer payments such as parental allowance, sickness benefit, etc...? €0
[*]How much equity do you have? approx. €160,000
[*]How much equity do you want to invest in the house project? approx. €130,000

Expense situation:
We rent and, after deducting all expenses (including leisure and vacation), have €4500 net available.
After purchasing the property, in the best case (energy costs and food prices do not rise more than 15%), we would still have €3200 available, and in the worst case (extreme inflation of energy and food prices) €2500.

Now to the actual question:

The financing of the property would currently be with an interest rate of 2.5-2.8 percent for a term of 10 or 12 years.
Financing installment: approx. €1700
Anything over 15 years would be from 3.0 percent.
Here we would be at an installment of approx. €1850-1900.

In the long term, our income situation will improve significantly because my position must be converted into a professorship (due to legal reasons). This could take up to 3 years, but as a result my net salary would improve to around €5800 (so a total of approx. €8500), and automatic salary increases over the years would also be higher. These additional €1100 as well as an already planned €1000 would go monthly into the MSCI World ETF, which has historically achieved 4-5 percent returns over a period of 10 years.
In addition, my partner is the sole heir in her family and will inherit at least one property, preferably two.

Would you prefer a long-term financing at a relatively high interest rate above 3 percent in this situation, or the shorter financing with the prospect of possibly paying off a large part of the remaining debt after 10-12 years (investments and sale of the inherited property)?

Best regards
AltbauCharme

I would probably choose the loan with a term of 10 - 12 years and set the installment to 1850 ;) and then continue building wealth with the remaining free amounts.

Is the inheritance coming up in the next 10 years? You guys aren't that old yet...

...btw....250 sqm for two...what do you do with that? :))

When the inheritance is due is woven into the thread of fate ;) - the respective family members are beyond 70. Part of the inheritance would, however, be transferred next year to reduce the inheritance tax. Yes, 250 sqm is large, but we both work quite a lot from home and would use the largest room (converted attic) for our fitness hobby. Then there is not so much living space left. After living in 50-65 sqm apartments for 12 years, we are looking forward to a lot of space - better too much than too little.

Would you prefer a long-term financing at a relatively high interest rate beyond 3 percent in this situation, or rather the shorter financing with the prospect of possibly paying off a large part of the remaining debt after 10-12 years (investments and sale of the inherited property)?

First of all, I don't see any high interest rates with you at all. I still see historically low interest rates ;). But that’s another topic. Given your financial situation, I would actually choose the shorter term with the higher installment. Liquidity is more than sufficient. However, you will have to pull yourselves together so that the salary increase doesn’t immediately flow into consumption. It sounds strange, but there are plenty of people with high incomes for whom it’s still tight because their lifestyle grows directly with the income increases. As for the house, just a note that with 250 sqm, Jugendstil, and the low price, it’s likely that the heating costs (if gas) could also amount to a higher single-digit thousand amount. You need to be aware of that. I just looked at a 180 sqm place from the 90s (also very well maintained) that currently has at least €500 monthly heating costs.

That is correct. However, we do not exactly live in a metropolitan area. At €599,000, it is currently the most expensive house on the market. Last year, when the market was extremely overheated due to low interest rates, there were also houses built in 2015 for €700,000, but nobody bought them.

The heating system is a new oil heating from 2011, and the lower floor is heated by a wood-burning fireplace. The owners have provided me with their utility bills, showing a consumption of 2300 liters, and with the current oil price, you can get through the winter well with €350.

A new roof and insulated attic make a big difference, and I think that with new windows (current windows from 1947), we can save another 40-50%.