Good evening everyone,
we registered in the forum today and are just starting our house building plans. We live in Bremen and want to build in the surrounding area.
Today, we had an appointment with an independent financial advisor who also financed my brother’s house and previously my parents’ house. I have just finished my studies, and we now have a total net income of about 3650 € (approximately $3850). We are both 29 years old – I completed vocational training and gained work experience before my studies.
I was mainly there because I am, of course, aware of the unusual interest rate situation and wanted to ask whether we should save to build equity or rather take advantage of the low interest rates. The answer was clear in this case: with 20,000 € (about $21,000) in equity, we can easily get a construction loan for 220,000 € (around $231,000). The interest rate situation is exceptionally favorable. The portion from the KfW loan would be 100,000 € (about $105,000). The effective interest rate for both loans combined would be 2.79%. The KfW loan would be repaid at 4.35%, and the bank loan (120,000 € / $126,000) initially only at 1%. The fixed-rate period is 10 years at first.
The monthly payment would be 958.31 € (approximately $1005).
This seems manageable monthly and exceptionally affordable to me.
Of course, the conversation was just for information, as all further steps (house type, construction company, land plot, etc.) still have to be reviewed and clarified to determine the actual financing needs.
My question is simply whether we actually received a good (non-binding) offer and whether you also think it makes sense in our situation to start building sooner rather than later, despite the low equity share?
Thank you very much.
we registered in the forum today and are just starting our house building plans. We live in Bremen and want to build in the surrounding area.
Today, we had an appointment with an independent financial advisor who also financed my brother’s house and previously my parents’ house. I have just finished my studies, and we now have a total net income of about 3650 € (approximately $3850). We are both 29 years old – I completed vocational training and gained work experience before my studies.
I was mainly there because I am, of course, aware of the unusual interest rate situation and wanted to ask whether we should save to build equity or rather take advantage of the low interest rates. The answer was clear in this case: with 20,000 € (about $21,000) in equity, we can easily get a construction loan for 220,000 € (around $231,000). The interest rate situation is exceptionally favorable. The portion from the KfW loan would be 100,000 € (about $105,000). The effective interest rate for both loans combined would be 2.79%. The KfW loan would be repaid at 4.35%, and the bank loan (120,000 € / $126,000) initially only at 1%. The fixed-rate period is 10 years at first.
The monthly payment would be 958.31 € (approximately $1005).
This seems manageable monthly and exceptionally affordable to me.
Of course, the conversation was just for information, as all further steps (house type, construction company, land plot, etc.) still have to be reviewed and clarified to determine the actual financing needs.
My question is simply whether we actually received a good (non-binding) offer and whether you also think it makes sense in our situation to start building sooner rather than later, despite the low equity share?
Thank you very much.
I just ran through an example. I assumed a loan amount of 200,000€ and, since you didn’t want any remaining debt after full repayment within 30 years, I based the calculation on that.
Loan amount: 200,000€
Interest rate: 3.6%
Fixed interest period: 30 years
Monthly payment: 909€
Remaining balance after 20 years: 91,621.33€
Remaining balance after 30 years: 0€
Alternatively:
Loan amount: 200,000€
Interest rate: 3.4%
Monthly payment: 909€
Remaining balance after 20 years: 82,724.86€
After that, the interest rate is adjusted.
At about 5.75% interest, this is the break-even point.
That means with a future interest rate of 5.75%,
the remaining balance after 30 years would also be 0€.
Any expected interest rate above 5.75% would, of course, speak in favor of a 30-year fixed interest period.
Since you apparently also want to make extra repayments, I ran a few examples for that as well.
With an annual extra repayment of 600€, the break-even point is at an expected interest rate of 7.1% after 20 years (total term about 27.5 years).
With an annual extra repayment of 1,200€, the break-even point is at 9.5% expected interest after 20 years (term about 25 years).
With an annual extra repayment of 1,800€, the break-even point is at 16.0% expected interest after 20 years (term about 23.5 years).
Assuming a constant monthly payment.
So, if you plan to make regular extra repayments, you should avoid choosing a fixed interest period that is too long.
Loan amount: 200,000€
Interest rate: 3.6%
Fixed interest period: 30 years
Monthly payment: 909€
Remaining balance after 20 years: 91,621.33€
Remaining balance after 30 years: 0€
Alternatively:
Loan amount: 200,000€
Interest rate: 3.4%
Monthly payment: 909€
Remaining balance after 20 years: 82,724.86€
After that, the interest rate is adjusted.
At about 5.75% interest, this is the break-even point.
That means with a future interest rate of 5.75%,
the remaining balance after 30 years would also be 0€.
Any expected interest rate above 5.75% would, of course, speak in favor of a 30-year fixed interest period.
Since you apparently also want to make extra repayments, I ran a few examples for that as well.
With an annual extra repayment of 600€, the break-even point is at an expected interest rate of 7.1% after 20 years (total term about 27.5 years).
With an annual extra repayment of 1,200€, the break-even point is at 9.5% expected interest after 20 years (term about 25 years).
With an annual extra repayment of 1,800€, the break-even point is at 16.0% expected interest after 20 years (term about 23.5 years).
Assuming a constant monthly payment.
So, if you plan to make regular extra repayments, you should avoid choosing a fixed interest period that is too long.
I would like to add a few points regarding the timing:
If the interest rate rises above 3.6% in the first few years, making extra repayments on the loan would not be the best option. It would be better to invest the money at the higher interest rate (which seems logical, but sometimes we become short-sighted). Also, no one can really count on being able to make extra repayments for sure; otherwise, one could have just agreed to higher monthly payments from the start.
Secondly:
Look at the interest rate trends over the past 20 years. Back then, rates were between 7.5% and 9%... anyone who claims that this can never happen again might be making a big mistake.
If the interest rate rises above 3.6% in the first few years, making extra repayments on the loan would not be the best option. It would be better to invest the money at the higher interest rate (which seems logical, but sometimes we become short-sighted). Also, no one can really count on being able to make extra repayments for sure; otherwise, one could have just agreed to higher monthly payments from the start.
Secondly:
Look at the interest rate trends over the past 20 years. Back then, rates were between 7.5% and 9%... anyone who claims that this can never happen again might be making a big mistake.
maeam schrieb:
If the interest rate rises above 3.6% in the first years, making extra repayments on the loan would be a mistake. It would be better to invest the money at the higher interest rate (which is logical, but sometimes you just can’t see the obvious) I don’t understand that. If I have a fixed interest rate for 20 years, it doesn’t matter at all where the rate goes afterward. If you think I should invest my money at 3.6%, you’d have to show me a bank that is safe enough and actually offers that 🙂 All those banks advertising 4% savings accounts are anything but reliable. Every extra repayment makes sense because it shifts the annual payments in favor of paying down the principal.
maeam schrieb:
And no one can really count on making extra repayments anyway; otherwise, they could just accept higher monthly payments right from the start. That shows how individual financing plans are. Our plan is based almost entirely on extra repayments. We have kept the monthly installment as low as possible to maintain maximum flexibility. We plan to make fixed extra repayments of 5-10% every year.
Higher interest rates at the end are certainly possible. But what you don’t seem to understand is that if you still owe less than 30,000 after 20 years at 9% interest, it hurts less than having paid too much interest for 20 years.
All these banks advertising savings accounts with 4% interest are far from trustworthy. Any extra repayment is useful because it shifts the annual payments in favor of the principal portion.And again, you are assuming the current interest rate situation. What will you do if in 10 years you get 5% interest on a savings account? Extra repayments?
The idea of high interest rates at the end is quite possible. But what you don’t seem to understand is that if you still have a remaining debt under 30,000 (about 33,000) at 9% interest, it hurts less than paying too much interest over 20 years.If you have a remaining debt of 30,000 (about 33,000), it’s no problem, but many loans are so bad that after 10 years the remaining debt is so high that you cannot even cover the interest, and this can happen if you agree to terms that are too short.
Of course, everyone has to decide for themselves, but this risk is often overlooked.