Finance cheaply despite interest rate increases

Will rising interest rates kill the dream of home ownership?

The interest rate comparison shows that in the first half of 2022, an unanticipated increase in interest rates took hold. Within a few months, the interest rate on construction loans rose to over 3 percent. Currently in August 2022, the interest rates show up again more favorable and settle for loans with 10-year fixed debit interest rate at ca. 2.5 – 3 percent a. The historical comparison: In 2000, you still had to expect an average of 6.5 percent with a ten-year fixed interest rate. In 2010, the interest rate was just under four percent. In 2020, they then fell below the 1 percent mark. The savings potential was thus extremely high. Not infrequently one could in the ten-year comparison with a larger real estate loan already also 000 euros in interest payments. Looking at the current development – and taking the key figures "inflation" and "federal bonds" – it can be assumed that interest rates on construction loans will not fall again. 3 percent plus x is to be expected in the next few months. Even if the interest taxation stagnates at present, is not to be expected with again falling interest rates.

Interest taxation: the forecast for 2022

Currently, the average interest rate – with a corresponding equity ratio of 40 percent and a 10-year fixed interest rate – has fallen slightly in recent months from just over three percent to the current 2.5 percent, assuming a corresponding equity ratio. It becomes still more expensive with own capital funds portion of less than 20 per cent from. Experts predict that the current interest rate is more likely to rise. By the end of the year, construction financing loans are expected to cost between 3 and 3.5 percent on average. It is also expected that interest rates will rise slightly by the end of 2022. Interest rates are not expected to fall below the 2.5 percent mark. The reasons for rising interest rates in construction financing:

Of course inflation plays an important role. As well as the influences on the business location Europe by the Ukraine war. Moreover, the corona pandemic is not over yet. And central banks are slowly ending bond purchases and saying goodbye to a 0 percent key interest rate. That we drive up the interest rates – both for savings deposits, but also for all loans.

Because interest rates do not continue to fall, investors in the interest rate markets want to be compensated – with a higher interest rate. Yields on federal bonds have already risen significantly. The interest rate of the federal loans is again an important indicator for the interest rate development in construction financing. So there is a need for action, especially for property owners who will soon have to extend their initial financing with follow-up financing. And of course all those who now want to finance a property for the first time.

For all construction financing contracts that have already been running for about 10 years, it is now time to act quickly

After a term of 10 years, every borrower has the right – regardless of the actual agreed contract term – to terminate the contract with a notice period of 6 months. Then the borrower has to conclude a follow-up financing with another bank with particularly favorable and flexible contract conditions. Or he can seek a prolongation from the bank providing the initial financing – naturally at particularly good, future-proof contract conditions. 2.5 to 3 percent for follow-up financing can indeed be considered favorable, if you consider how high the building loan interest rates were 10, 20 or 30 years ago.

Cancel construction financing contracts before the end of 10 years

Of course, you can also cancel the construction loan at an earlier date. But then the borrower has to pay to his bank an early repayment penalty for the interest that the bank misses out on. This is all the higher, the earlier before the agreed maturity date is terminated. That can then already times more than 10.000 euro amount.

Avoid further interest taxation for loan agreements whose fixed-interest period ends during 2023

There are more and more providers of construction financing, which offer follow-up financing with a provision interest-free period of 12 months. This means that if you already one year before the expiry of the initial financing at the present time with still very favorable interest rates a follow-up financing or if necessary a Prolongation locks, for the period to be bridged no fees or. additional interest due. And the follow-up financing then follows on seamlessly from the initial financing. In rare cases, you can find banks that offer more than this 12 months provision interest free period.

But be careful: some banks, which give a provision interest-free period of 12 months or more, already charge more than the current low-interest providers. And often the contract are then also not flexibly equipped. This is to be examined in advance exactly – best with a bank-independent Baufinanzierungsvermittler like the accedo ag.

Counteract the rise in interest rates with a forward loan

Forward loans are agreed 12 to 60 months in advance until the fixed interest rate of the initial contract ends. However, they cost a surcharge on the current interest rate, which depends on the period between expiration and follow-up financing. For 12 months there is currently an average of 0.08 percentage points, for 36 months forward 0.45 percentage points and for 5 years about 0.6 percentage points on top, which must be paid during the entire fixed-interest period.

That is, if the interest rate for a 36-month forward loan in three years is higher than 0.45 percent than at the time of conclusion, a forward loan is worthwhile. Or to put it another way: if you currently receive an interest rate of 2.5 percent, in 3 years the interest rate should be above 3 percent so that the forward loan is worthwhile. A residual risk remains: If interest rates do not rise accordingly during this period or even fall again, the borrower must still finance at the interest rate agreed in the forward loan. After conclusion Forward loans are no longer terminable namely.

If you are financing for the first time, you can avoid interest taxation with your own capital

For all those who want to buy a property in two years, there are few ways to secure the currently still favorable interest rate. Nevertheless, one should not fall into hectic. Although interest rates are rising, they are still favorable compared to the past decades. To avoid too high interest rates in one to 2 years, it helps to include as much equity as possible in the financing (30 percent or more). Because a high equity reduces the interest rate.

Then there is also the "parent trick": If parents own a property that is already paid off, the children can already agree today on a forward loan with the bank for the future. A land charge for the parents' house, which is entered in the land register, serves as security for the bank. Later, when you have bought your own property, you can change the land charge from your parents' house to your own. Currently, there are some banks that go along with this "parent trick".

An interest rate comparison is the best way to finance at favorable interest rates

Instead of signing an initial financing too quickly in order to save a few percentage points, a detailed bank comparison, sound financial planning and a well-considered decision are recommended. Because the difference of the interest offers of different banks is much higher. For a loan of 300.000 euros, 30 percent equity ratio and 10-year fixed interest rate, the offers vary between 2.4 percent and 3.10 percent. The most expensive offer provides in ten years for additional costs of nearly 25.000 euros (or. of over 200 euros per month).

Such an interest rate comparison is best done with a bank-independent construction financing broker such as accedo ag. Not only do they know the current interest rates of more than 400 providers, they also help to develop a construction financing concept that is tailored to the borrower's own financial possibilities with the greatest possible flexibility and freedom from debt as quickly as possible. Particularly in times, in which the interest rises again, such a – and like with the accedo ag – completely free consultation is gold worth, gives security and saves at the end much money. Because one thing is certain: rising interest rates fuel competition between providers. That is why a serious comparison of providers is important.

Herei help provider comparison calculators on the Internet only conditionally or. offer only a first approximation. Because the interest rate shown there says little about the construction financing contract. Is it designed flexibly? What about the interest-free lead time? Can subsidized loans, home savings or Riester contracts further reduce the total cost of financing? These are questions you can best discuss with proven experts. And this advice is completely free of charge at accedo AG – regardless of whether you ultimately decide in favor of or against construction financing.

Interest rate development 2022 - building loan interest rates still favorable in historical comparison

The interest development in the 2. Half year 2022: an interest rate of 4% is to be expected, but a property purchase can still be financed cheaply.

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