Building money: check who is tied for a long time

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Building interest rates have risen significantly since the beginning of the year and there are no signs of falling again. At the moment, bank customers pay an average of 0.82 percent interest per year for construction money with a ten-year term. The last interest rate level was that high at the end of 2019. More and more borrowers apparently fear that things will continue to rise. In any case, mortgage lenders are reporting an increasing demand for forward loans. This allows you to secure the current interest rate for follow-up financing for a surcharge.

If you pay for a property with the help of the bank, you have another, simpler option to protect yourself against rising interest rates: You can take out a building loan with a particularly long term. In most cases, the fixed interest rate for building money is ten, at most 15 years. After this period, borrowers can either extend the current mortgage lending or convert it into a new contract. In both cases, the amount of the borrowing interest will be redefined. The advantage of a longer fixed interest rate is obvious: borrowers can benefit from the currently still very low interest rates for longer. However, loans that run for 20 or 30 years also have disadvantages.

The biggest drawback: building money with a long term is more expensive than those with short fixed interest rates. The longer the term, the higher the risk for the lender, and he wants to be compensated for this risk. For real estate financing with a term of 20 years, FMH-Finanzberatung currently shows an average interest rate of 1.32 percent per year. As a reminder: Ten-year building money costs an average of 0.82 percent. It is only worthwhile to commit yourself for a long time if you assume that interest rates will rise significantly during the term of the loan. The likelihood that conditions will deteriorate so much in the next two to three decades that today’s long-term interest rate looks favorable, however, is quite high.

But not so inflexible

Another problem with long-term financing is, at least at first glance, its comparatively low flexibility. After all, the contracts not only secure the current interest rate in the long term, but also commit to a lender for two to three decades. Special repayments, with which you can repay the loan more quickly, are not recommended. Many providers only allow them against a surcharge that can eat up the cost advantages of the long term.

At second glance, however, building money with a long fixed interest rate is not as inflexible as it seems. First, with many loan providers, the repayment amount can be adjusted up or down during the term – usually a few times for free. Second, the legislature has stipulated that borrowers from the 11th year can redeem a loan in whole or in part with six months’ notice without having to pay compensation to the provider. With this special right of termination, home buyers and builders who take out a long-term loan are practically on an equal footing with borrowers with the classic fixed interest period of ten years in terms of flexibility.

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