State Aid Lowers Interest Rates: How Families Can Save Money on Real Estate

After the sharp increase in construction interest rates since last year, the dream of owning a home seems to be a long way off for many people. The average interest rate for a real estate loan with a fixed interest period of 10 years is currently around 3.8 percent. At the age of 15 it is around 3.9 percent.

Although building interest rates have fallen again somewhat since the spring, we will no longer experience a financing paradise with interest rates below one percent, at least not in the next three to five years. The majority of experts assume that the conditions will level off at the current level or even increase. This is not good news for prospective builders and homebuyers.

But has the dream of owning your own four walls really come to an end due to the rise in interest rates? That would be a hasty conclusion. There are a few ways to lighten your wallet. With the numerous building subsidy programs of the state credit institution for reconstruction (KfW), up to tens of thousands of euros in interest can sometimes be saved. However, after the “Federal Funding for Efficient Buildings” (BEG) came into force in July 2021, the funding focus shifted to the topic of “energy efficiency”. Since then, the rule of thumb has been: The less energy a property uses, the higher the discounts.

Interest crackers for families!

A new KfW program (credit 300) for families with low or medium incomes who want to build or buy a climate-friendly residential building or a corresponding condominium for their own use offers extremely favorable conditions. At the start, the APR is 0.01 percent for loan terms of 4 to 10 years. At 11 to 25 years it is 0.80 percent and at 26 to 35 years it is 1.00 percent. A 10-year fixed interest rate applies. The low-interest credit volume amounts to a maximum of 140,000 or 240,000 euros. Private individuals who live in the subsidized property themselves and who have at least one child aged up to 18 living in their household are eligible to apply.

A further prerequisite for being accepted into the KfW family support program is that the family does not own any other residential property when the application is submitted and that the “Baukindergeld” support program (“KfW subsidy program 424”), which has now expired, has not been used. The property to be financed must also be a climate-friendly residential building. This requires, among other things, that the efficiency house standard 40 be achieved and the heat must not be generated with oil, gas or biomass. Defined limit values ​​for the emission of greenhouse gases must also be observed over the entire life cycle.

The family loan from KfW offers first-class conditions, but one point of criticism is the low upper limit for taxable net income. In order to benefit from the subsidy, the taxable annual household income for one child must not exceed EUR 60,000. This amount increases by 10,000 euros for each additional minor child. For a family with three children, it would be 80,000 euros. Nevertheless, many households willing to build are likely to be just above the income limit and therefore excluded from the program. A more generous interpretation of income would therefore have been desirable.

Funding for private individuals and investors

KfW also offers low-interest loans for anyone who also wants to build or purchase a climate-friendly residential building (first purchase), but does not fall under the support group of the “Home ownership for families” (credit 300) program. The conditions are not quite as spectacularly favorable as with the family program, but they also offer very attractive interest rates.

For private use (loan 297), for example, the borrowing rate is 0.81 percent with a loan term of 4 to 10 years and a fixed interest rate of 10 years. With a term of 11 to 25 years it is 1.78 percent and with a term of 26 to 35 years 1.93 percent. The loan amount depends on the degree of energy efficiency, with the maximum loan volume for climate-friendly residential buildings amounting to 100,000 euros and for climate-friendly residential buildings with QNG to 150,000 euros. The KfW also has a similar program for people who do not use the residential building themselves, such as landlords, investors or entrepreneurs (loan 298). Terms and conditions correspond to those of the self-user loan.

Renovators can benefit twice

For anyone who wants to renovate their house or apartment to be energy-efficient, KfW has a lucrative offer in two respects with the loan program 241 (residential building – loan). On the one hand because of the very low debit interest rates. They start at 0.33 percent with a term of 4 to 10 years and a 10-year fixed interest rate and go up to 1.61 with a term of up to 30 years. On the other hand – and this is the special highlight – there is a repayment subsidy on these loans from KfW. This saves a lot of money, because the repayment subsidy reduces the loan and shortens the term. The entire amount does not have to be repaid.

The better the efficiency house level of the property after renovation, the higher the repayment subsidy. Here is an example: In the case of an Efficiency House 40, the repayment subsidy amounts to 20 percent with a maximum loan amount of EUR 120,000 per residential unit. That makes a saving of an impressive 24,000 euros. In addition, KfW offers a range of extra repayment grants if certain criteria are met. In general, all energy-related measures that lead to an efficiency house level of 85 or better are funded. This also includes ancillary construction costs and restoration costs.

The prerequisite is that the planning application for the residential building was at least five years old at the time of the application. Anyone who purchases a property that has just been renovated in terms of energy efficiency also falls into the support group, provided the costs are shown separately in the purchase contract.

Pay attention to state programs

The three examples above show that interest costs can be saved to a considerable extent with KfW loans. In addition, some federal states have launched attractive programs to promote home ownership. This includes, for example, the “Hesse Loan” from the Hessen Economic and Infrastructure Bank with a borrowing rate fixed for 20 years of a favorable 0.60 percent per year on a maximum loan amount of EUR 200,000.

Families (with at least one child) who want to buy or build their own home in Baden-Württemberg can apply for funding through the Z15 loan from the L-Bank (state bank for Baden-Württemberg). The debit interest fixed for 15 years is 1.00 percent per year. The Free State of Bavaria also offers low-interest real estate loans as part of the Bavarian housing program – in the best case from a debit interest rate of 0.50 percent per year.

Tip: Get professional advice

Such regional subsidies can possibly be considered as a supplement to KfW loans. It is best to consult an experienced real estate financing advisor. This not only knows all the relevant programs, but also checks whether the requirements for a development loan are met and whether different offers can be combined. In addition, the real estate financing consultant also takes care of the application – usually without additional costs.