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.
We have just started building our house, and I can only advise you to choose longer loan terms given the current interest rate situation. No one can tell you where interest rates will be in 10 years, and then you would have to renegotiate. If things go badly, you might not be able to pay off the remaining loan balance after 10 years. The favorable government-subsidized loan also expires in 10 years. We locked everything into a single loan with a fixed term of 30 years. If the situation in 10 years is better than today, we can still get out of the loan and refinance at lower rates, though I consider that unlikely.
Personally, I had a big problem with the complex, layered loans for me—such as follow-up financing through home savings contracts (building savings) and so on.
In the end, our financial advisor helped me find a very simple way to compare all financing options:
What is my monthly payment, and will it stay the same, or is there an unpredictable risk (interest rates in 10 or 15 years)?
I hope this is somewhat helpful.
Personally, I had a big problem with the complex, layered loans for me—such as follow-up financing through home savings contracts (building savings) and so on.
In the end, our financial advisor helped me find a very simple way to compare all financing options:
What is my monthly payment, and will it stay the same, or is there an unpredictable risk (interest rates in 10 or 15 years)?
I hope this is somewhat helpful.
Well, you should consider whether a 30-year term really makes sense, since you end up paying more interest over 30 years than over 20 years. That’s a full 10 years more, so the costs add up.
If your plan is to pay off the debt within 20 to 25 years anyway, which also makes more sense economically, then a 30-year fixed rate period does not make much sense. That’s why you should be cautious with such general advice. Since we don’t know Sheva’s plan, I hope your financial advisor has taken that into account 😀
If your plan is to pay off the debt within 20 to 25 years anyway, which also makes more sense economically, then a 30-year fixed rate period does not make much sense. That’s why you should be cautious with such general advice. Since we don’t know Sheva’s plan, I hope your financial advisor has taken that into account 😀
I agree with Der Da here.
However, you pay an interest premium for the interest rate security over 30 years. This extends your repayment period if you keep the same monthly payment. Compared to a 20-year fixed interest rate term, you will have a larger remaining loan balance after 20 years.
In 20 years, the remaining loan amount generally should not be so high that even an interest rate increase to 5–10% would cause an excessively large financial burden.
I also don’t want to have my loan fully repaid only after 30 years, even though the planned initial repayment rate of 2% leads to that. Given the current interest rate situation, I wouldn’t recommend a term of less than 20 years either (unless required by KfW).
However, you pay an interest premium for the interest rate security over 30 years. This extends your repayment period if you keep the same monthly payment. Compared to a 20-year fixed interest rate term, you will have a larger remaining loan balance after 20 years.
In 20 years, the remaining loan amount generally should not be so high that even an interest rate increase to 5–10% would cause an excessively large financial burden.
I also don’t want to have my loan fully repaid only after 30 years, even though the planned initial repayment rate of 2% leads to that. Given the current interest rate situation, I wouldn’t recommend a term of less than 20 years either (unless required by KfW).
Why is it reckless to take out a loan with a residual debt?
Of course, the residual debt should be predictable, and it is essential to calculate how much the payment will increase if the interest rate rises, for example, to 9%. But if I can manage the payment, then it shouldn’t be a problem...
Of course, the residual debt should be predictable, and it is essential to calculate how much the payment will increase if the interest rate rises, for example, to 9%. But if I can manage the payment, then it shouldn’t be a problem...