Finance cheaply despite interest rate increases

Will rising interest rates shatter the dream of owning a home?

The interest rate comparison shows that an unexpected increase in interest rates took hold in the first half of 2022. Within a few months, the interest rate on building loans rose to over 3 percent. Currently, in august 2022, interest rates are becoming more favorable again and are settling at approx. 2.5 – 3 percent. Historical comparison: in 2000, the average interest rate for a ten-year fixed-interest period was 6.5 percent. In 2010, the interest rate was just under four percent. In 2020, they would then fall below the 1 percent mark. The savings potential was therefore extremely high. It was not uncommon to be able to achieve 100 percent interest on a larger real estate loan in a ten-year comparison.Save 000 euros in interest payments. Looking at current developments – 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 interest rate inflation is currently stagnating, interest rates are not expected to fall again.

Interest rate increases: 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 again in recent months – from just over three percent to the current 2.5 percent, assuming a corresponding equity ratio. It becomes even more expensive with an equity ratio of less than 20 percent 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 have the effects of the ukraine war on europe as a business location. In addition, the corona pandemic is not yet over. And the central banks are slowly ending their bond purchases and saying goodbye to a 0 percent interest rate. This will drive up interest rates – both for savings deposits and for all loans.

Because interest rates are not falling any further, investors want to be compensated on the interest rate markets – with a higher interest rate. Yields on german government bonds have already risen significantly. The interest rate on federal bonds is, in turn, an important indicator of interest rate trends 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 around 10 years, the time to act is now

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

Cancelling construction financing contracts before 10 years have elapsed

Of course, you can also terminate the construction loan at an earlier point in time. However, the borrower must then pay the bank an early repayment penalty for the interest lost by the bank. This is all the higher the earlier the policy is terminated before the agreed end of the term. This can then be more than 10.000 euros.

Avoid further interest taxation in the case of loan agreements whose fixed-interest period ends in the course of 2023

More and more providers of construction financing are offering follow-up financing with an interest-free period of 12 months. This means that if you take out a follow-up financing or, if applicable, a prolongation one year before the expiry of the initial financing at the present time with still very favorable interest rates, no fees or charges will be charged for the period to be bridged. Additional interest due. And the follow-up financing then seamlessly follows on from the initial financing. In rare cases, you can also find banks that offer more than this 12-month interest-free period.

But beware: some banks that offer a grace period of 12 months or more are already charging more than the current low-interest providers. And often the contract is then also not flexibly equipped. This should be checked carefully in advance – ideally with a bank-independent construction financing broker such as 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 premium on top of the current interest rate, which depends on the time span between expiration and follow-up financing. Currently, an average of 0.08 percentage points is added for a 12-month term, 0.45 percentage points for a 36-month term, and around 0.6 percentage points for a 5-year term, which must be paid over the entire fixed-interest period.

This means that if the interest rate for a 36-month forward loan is higher than 0.45 percent in three years 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 to make the forward loan 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 can no longer be terminated.

If you finance for the first time, you can avoid the interest rate tax with equity 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, you should not fall into a hectic rush. Although interest rates are rising, they are still favorable by decade standards. To avoid too high interest rates in one to 2 years, it helps to put as much equity as possible (30 percent or more) in the financing. Because a high level of equity cheapens the interest rate.

Then there is also the "parental trick": if parents own a property that has already been paid off, the children can already agree a forward loan with the bank for the future today. The bank uses a land charge for the parents' house, which is entered in the land register, as security. Later, when you have bought your own property, you can change the basic debt from your parents' house to your own. Currently, you can find some banks going along with this "parenting trick".

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

Instead of signing an initial financing agreement too quickly in order to save a few percentage points, a detailed comparison of banks, sound financial planning and a well-considered decision are recommended. The difference between the interest rates offered by different banks is much greater. For a loan of 300.000 euros, 30 percent equity share and 10-year fixed interest rate, the offers vary between 2.4 percent and 3.10 percent. The most expensive offer adds almost 25 percent to the cost over ten years.000 euro (or. From over 200 euros per month).

The best way to compare interest rates is with a bank-independent construction financing broker such as accedo ag. Not only do they know the daily interest rates of more than 400 providers, but they also help you develop a construction financing concept that is tailored to your own financial possibilities, with as much flexibility as possible and as quickly as possible to get out of debt. Especially in times when interest rates are on the rise again, this kind of advice – which is completely free of charge, as is the case with accedo ag – is worth its weight in gold, provides security and saves a lot of money in the end. Because one thing's for sure: rising interest rates are fueling competition among providers. That is why a serious comparison of providers is important.

Here, provider comparison calculators on the internet are of only limited help, respectively. Offer only a first approximation. Because the interest rate shown there says little about the construction financing contract. Is it flexible? What about the interest-free lead time?? Can subsidized loans, home savings or riester contracts further reduce the overall 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 development 2022 - building loan interest rates in the historical comparison still favorable