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.
No, I still cannot see any logical error in our approach.
We have two home savings contracts, one running for 10 years and the other for 15 years. We make monthly payments into one and annual payments into the other. Of course, we have calculated how much we need to save in each to fully fund the contracts and then pay off our loans accordingly. If we have extra money at the end of the year, we don’t put it into the home savings plan, since it wouldn’t benefit us if it matures earlier. That money is logically kept in a separate account, because it definitely won’t be used to pay down the loan.
We have two home savings contracts, one running for 10 years and the other for 15 years. We make monthly payments into one and annual payments into the other. Of course, we have calculated how much we need to save in each to fully fund the contracts and then pay off our loans accordingly. If we have extra money at the end of the year, we don’t put it into the home savings plan, since it wouldn’t benefit us if it matures earlier. That money is logically kept in a separate account, because it definitely won’t be used to pay down the loan.
P
perlenmann14 May 2012 11:11Marit schrieb:
This money will logically be deposited into an account, because it definitely won't be used for the loan.And that’s where the misunderstanding is.
What interest do you earn on the account, and what interest rate do you pay on the loan?
Maybe we are talking past each other. You should actually have €5,000-10,000 ready in a bank account. But anything beyond that should, if possible, be used for extra repayments. This buffer is meant for larger purchases or repairs.
But everyone is free to do as they please 🙂
But everyone is free to do as they please 🙂
Yes, I think we are talking past each other. Our reasoning is not based on financial aspects but rather on a mindset focused on security.
At the beginning of our financing, we set a monthly loan repayment amount that we could comfortably manage, even with only one income if we have children. We have stayed well within this amount thanks to the KFW loans. (And we are even repaying the KFW loans at about 2.3%, as specified.) Now we can even increase the monthly deposit into our building savings contract. Ultimately, this means that paying this amount does not hurt us because it was planned from the start. So if there is money left over at the end, we simply have something to put aside. This allows me to go to bed calmly, knowing that if something unexpected happens (you never know), there is a decent financial cushion. I do not want to arrange my life solely around the loan and throw every cent into it immediately—that is not worth it to me, and with the current interest rates, it is easier for me to take this approach. I understand that I am losing out on interest, but that does not bother me.
I believe that taking on financing of this scale requires more than just calculating how quickly the debt can be repaid. There are so many unknown variables at this point in time that cannot yet be assessed. So, that is my perspective, and also that of my husband ;-) And I still insist that I am not making a mistake in my thinking!!! ;-)
Oh, and having a buffer of 2–3 months’ salary set aside goes without saying!!!
At the beginning of our financing, we set a monthly loan repayment amount that we could comfortably manage, even with only one income if we have children. We have stayed well within this amount thanks to the KFW loans. (And we are even repaying the KFW loans at about 2.3%, as specified.) Now we can even increase the monthly deposit into our building savings contract. Ultimately, this means that paying this amount does not hurt us because it was planned from the start. So if there is money left over at the end, we simply have something to put aside. This allows me to go to bed calmly, knowing that if something unexpected happens (you never know), there is a decent financial cushion. I do not want to arrange my life solely around the loan and throw every cent into it immediately—that is not worth it to me, and with the current interest rates, it is easier for me to take this approach. I understand that I am losing out on interest, but that does not bother me.
I believe that taking on financing of this scale requires more than just calculating how quickly the debt can be repaid. There are so many unknown variables at this point in time that cannot yet be assessed. So, that is my perspective, and also that of my husband ;-) And I still insist that I am not making a mistake in my thinking!!! ;-)
Oh, and having a buffer of 2–3 months’ salary set aside goes without saying!!!
Well, you have to make sure that, despite all the comfort, you’re finished by age 65. Otherwise, your private retirement savings will have to go toward the mortgage repayment. Our plan is to pay off the house as quickly as possible—enough so that a family holiday to China is affordable. Our loan payments are almost as high as rent for a similar property. That’s due to the high rental prices here... You can easily get an 80 m² (860 sq ft) new build for 1300 with utilities included 🙂
But if I have an extra €10,000 (about $11,000) in the bank at the end of the year, that will definitely go toward the mortgage repayment. Alternatively, I could just send it directly to Greece… or Spain, or somewhere else…
I think especially now and over the next 10 years, you should invest your money as safely and securely as possible. And where is it better invested than in expenses you won’t have later on? Imagine if you’re 57 years old with 10 years left to work, and everything you earn after that is yours because you already own the house. You can spend the last 20–40 years of your life traveling, spoiling your children, and doing all the things you wouldn’t have had time for during your working years. If you enter retirement healthy, you can still enjoy many years. I’m seeing this happening right now in my own family.
But in the end, it really depends on what options you have. Well, I’m Swabian after all, and I’m not about to let the bank benefit from my money 🙂
But if I have an extra €10,000 (about $11,000) in the bank at the end of the year, that will definitely go toward the mortgage repayment. Alternatively, I could just send it directly to Greece… or Spain, or somewhere else…
I think especially now and over the next 10 years, you should invest your money as safely and securely as possible. And where is it better invested than in expenses you won’t have later on? Imagine if you’re 57 years old with 10 years left to work, and everything you earn after that is yours because you already own the house. You can spend the last 20–40 years of your life traveling, spoiling your children, and doing all the things you wouldn’t have had time for during your working years. If you enter retirement healthy, you can still enjoy many years. I’m seeing this happening right now in my own family.
But in the end, it really depends on what options you have. Well, I’m Swabian after all, and I’m not about to let the bank benefit from my money 🙂
Yes, everyone has to set their own priorities. Making extra repayments is simply not an option for us at the moment or for the next 10 years. Although I don’t think we will be able to save much over the next 10 years if our plans for having children go as we hope. But it’s nice to have a financial cushion so that if our horse has colic or the dog has gastric torsion, I don’t have to worry immediately about the vet bill.
Oh, and we will have paid off our loan by retirement age, so I’m not worried about that...
Oh, and we will have paid off our loan by retirement age, so I’m not worried about that...