Tuesday March 16, 2021
Are interest rates rising?
When is a forward loan worthwhile?
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Seldom have real estate buyers been able to negotiate more relaxed with their bank than in the past six months. The interest rates for construction money remained, as if cemented, at a record-breaking low level. But now other times are dawning.
The VAT cut has expired, the new CO2 tax makes energy more expensive. This has consequences: The rate of price increases in Germany. According to the Federal Statistical Office on Friday, the inflation rate in February was 1.3 percent. In January, statisticians had measured a rate of 1.0 percent, after minus 0.3 percent in December.
In addition, government bond yields and interest rates have recently risen again in the USA. “That will probably also happen in Germany,” says Max Herbst from the independent financial consultancy FMH in Frankfurt am Main. “And that means that building money should also become more expensive.”
According to the FMH, the interest rates are still cheap: For a loan with a term of 10 years, an average of 0.78 percent interest is currently due (as of March 12, 21). The experts expect interest rates to stay that low. For comparison: At the beginning of 2018, the loan still cost around 1.5 percent interest.
Think about follow-up financing
Owners should therefore think about their follow-up financing now if their fixed interest rate expires in the foreseeable future. It may be worth taking out a forward loan. In this way, you secure the current interest conditions for the future, but you have to pay a premium for it. Whether this premium is worthwhile depends on the extent to which interest rates rise. But Herbst is convinced: “The time for a forward loan has never been better.”
A forward loan with a lead time of six months and five years is possible. But: the longer the lead time, the higher the forward premium. If the fixed interest rate expires in 12 months, according to FMH, an average of 0.072 percent more interest is due. With a lead time of 24 months, the surcharge is 0.213 percent and with 36 months it is 0.354 percent. “But it won’t stay that low for long,” says Herbst.
It is therefore important to compare the conditions of different providers well with one another. Just turning to your house bank can be a disadvantage. The reason: According to FMH, it usually calculates with the property value of the initial financing. A new provider, on the other hand, uses the current value as a basis, which is likely to be higher due to the price increases than when buying. The loan-to-value ratio with new providers is also lower, since part of the debt has already been paid off. That, too, depresses the interest rate.
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