The question of property: building loan with the fixed-rate loan is an expensive combination

Fixed loans and savings contracts are blunt weapons in the fight against high-interest rates. Many individuals include those combinations nevertheless repeatedly. But hopes are often disappointed. The financial question.

It is well known that fixed-term loans and savings contracts are blunt weapons in the fight against high-interest rates. Nevertheless, include individuals each day from such combinations. They trust that the high-interest rates of the current loans and low-interest rates of future building society loans carry the bottom line at advantageous overall prices. This is a fallacy in most cases, as investors overlooked that until the allocation of savings contracts much money is left behind.

The deposit rates of savings contracts amount to about one percent, and the borrowing rates of the loans are at about 5 percent a year. The difference of 400 basis points leads to the allocation of savings contracts to high losses, so it is foreseeable that the combination of a savings agreement and fixed loan costs often 3 or 4 percent but multiple 5 or 6 percent. But what to do with individuals when they realize that they are gone astray? Let them hold the existing financing or should they dissolve the two contracts and re-establish the credit building on a greenfield site.

If the bank suspects big business

The possibilities are evident in the example of a lawyer who still needed 150,000 euros to pay for his own home a year ago. The easiest solution would have been the inclusion of a traditional mortgage and the direct payment of the debt. But that was too cheap the lawyers. The bank suspected big business. She offered the lawyer to distribute the debt on two contracts of 100,000 euros. The first contract has an interest rate of 4.5 percent, which is valid for four years. Parallel to this contract a building loan over 100,000 euros and an immediate payment of 50,000 euros was offered. After the allocation of credit will cost only 1.95 percent per year.

The second loan agreement is over 100,000 euros. Only with this solution, the savings agreement is fed with normal rates, so that up to the assignment of the building society loan spread over eight years. As long as an interest rate of 5 percent applies to the advance loans a year; then he will fall to 3.75 percent per year. Overall, the lawyer of the package was so delighted that he access and the contracts signed: lending rates of 1.95 and 3.75 percent were true in his eyes bargain. The joy did not last long because he expounded an auditor that the real cost is around 6 percent.

Building society deposits increased already to 50,500 euros

The basis of calculation is the current status and future cash flows. The first loan is for 100,000 euros. The borrowing rates of 4.5 percent to be paid for three years so that consequently 36 installments of 375 euros are due. In parallel, the building society deposits have grown to 50,500 euros. It will climb up to the assignment in three years to 52,030 euros. After that, the difference between lending and deposits will continue as building loans. The rates of interest and repayment will amount to 800 euros a month. The low borrowing rate of 1.95 percent and the high repayments the term will be only 63 months so that the first part of the financing will be completed in achteinviertel years.

As soon the second part of the funding will not be off the table. This is due to the fact that in the second Bausparvertrag the minimum savings is saved in small bites. The contract stuck until 6000 euros. Therefore, it will take another seven years before the required 50,000 euro will be available in the account. For this, yet 84 savings rates of 500 euros are needed. Until the allocation of building society loan, the borrowing rates for the advance credit to be paid. They are located at 5 percent a year, making a total of 84 interest rates are due. Then the hard loan is replaced by the building society loan. It is considered a borrowing rate of 3.75 percent, and the monthly payments for principal and interest will amount to 600 euros. They must be paid for eight years.