Combination loans when flexibility counts

Combination loans - a combination of variable-rate and annuity construction financing for faster debt freedom

When people talk about a construction loan, they generally mean a loan with a fixed term and interest rates, as well as installments that remain constant each month. This is called an annuity loan and is the most common form of construction loan in germany. But you can also finance differently. For example, with a combination loan. This combination loan combines a variable construction financing with an annuity loan. How it works? And for whom does this type of loan make sense?

A combined loan helps everyone who expects a larger amount of money in the future

Part of a combination loanbconsists of so-called variable construction financing. This form of financing is used especially in anglo-american countries to keep construction financing as flexible as possible. The concept is simple: this type of construction financing is not tied to a fixed interest rate and is usually reset every 3 to 6 months.

The interest rate used in variable construction financing is based on the so-called EURIBOR. This is the average interest rate at which 57 european banks, grant themselves bonds in euros. At the end of the 3 to 6 month borrowing rate period, the borrower can decide whether to:

  • Repay all or part of the remaining debt,
  • Financed further with the borrowing rate fixed again for 3 to 6 months or
  • Or change a long-term annuity loan.

Normally you use a variable construction financing in times of a foreseeably falling interest rate. Currently, the interest rate is at a very low level with a medium-term tendency to move sideways or upwards. A slight increase. Auc in such a phase a variable construction financing can make sense. Whenever you need to borrow a larger amount of money in the short to medium term (z. B. Life insurance, investment or inheritance), the risk is not too great. In order to cover this however, one uses as second credit portion an annuity loan.

Secure the combination loan with an annuity loan

So that one does not have the full risk of a purely variable construction financing, one combines an annuity loan to it. So you can z. B. Finance 60 percent fixed and 40 percent variable. In other words, you take advantage of the opportunity to borrow a portion (z. B.40 percent) at once and at a time of your choice and are therefore not dependent on restricted special repayment conditions of an annuity loan. On the other hand, you are sure that 60 percent can be safely serviced over the entire term with a fixed interest rate.

Thus, the combination loan helps you to repay faster. Thus, the combi loan is an alternative for those who have cash reserves that they want (but do not have to) put into the complete loan repayment at a time of your choice. Monitoring the interest rate trend is a basic requirement to know when you should fully service the portion of the variable construction loan.

The combined loan has two disadvantages

On the one hand, not every bank and not every loan broker offers a combination loan. On the other hand, the customer must commit to a bank until the end of the term of the annuity loan. So you can't switch to a bank that offers the variable part at a lower rate.

If you are considering to finance a part with variable rate, because you have a guarantee of a higher amount of money in the future, then you need to find a provider that offers the combination loan consisting of variable construction financing and annuity loan. ACCEDO helps them to do so. We recommend that you seek comprehensive and competent advice. Whether a combination loan makes sense for you, depends on many factors. There are also other forms of financing such as CAP or variable construction financing – which you can consider if your financial situation allows for it. Your professional and bank-independent consultants at ACCEDO AG have the right answers for your secure future as a real estate financier.

Variable construction financing loans are a form of loan that are very popular, especially in anglo-american countries, among the most common loans in real estate financing. In germany, on the other hand, this type of loan is hardly known. This may be because the german wants solid financing and shies away from risk. That is why annuity loans, where both the term and the monthly installment are fixed ..