What are the advantages of signing a home loan and savings contract?
The motto for classic home loan savings is simple: Save first, then build . The promise behind it: Consumers regularly invest money and then get a loan.
For the first phase, saving , the following example from our consulting practice:
The building society savings amount is 10,000 dollars, the closing costs are 100 dollars. The credit interest is 0.25 percent. The consumer saves 50 dollars per month, and after 8.5 years the contract is ready to be allocated, which means that the consumer can take advantage of the building society loan.
Was that a good investment up to that point? The numbers speak a clear language: No! Because the credit is then 5,155 dollars, of which only 55 dollars represent interest, but initially 100 dollars acquisition costs were due. That is probably a clear negative business for the saver .
To the second phase, building . The building society saver can now dispose of his building society loan, here in the example at an interest rate of 2.5 percent per year. If you include the loss from the savings phase, the loan is actually around half a percentage point more expensive. In any case, the home saver can finance a fixed interest rate of USD 4,845, which corresponds to the difference between the home loan amount and the credit balance.
This loan is to be repaid within a good 9 years. But is that really a cheap loan? Nobody can seriously foresee that today. At the moment, the interest rates for 10-year building loans are not significantly lower.
Conclusion: With a home loan and savings contract, the savings phase is not worthwhile unless the tariff chosen has a high credit interest rate and the savings interest for other savings products will fall in the future. The loan phase, however, is only worthwhile if loan interest rates rise significantly in the future.
Nobody knows how it will end up. We neither. Our advice is therefore : Anyone who is still in the dark about how their savings will be used later should not pay unnecessarily high acquisition costs and instead consider contracts with attractive investment rates.
What to do with an old home loan and savings contract
From today’s perspective, some old home loan and savings contracts offer high credit interest rates, and in some cases receiving bonus interest. The reserves for unforeseeable expenses, especially maintenance costs, can be parked on an old contract with good interest. You can leave the contract standing for the time being , but the building society can terminate the contract as soon as the balance has reached the building society sum.
Here you will find the background to the wave of termination by building societies, in which old contracts with good interest rates are terminated. Be skeptical if your building society advises you to change tariffs and argues that this would secure you a lower loan interest. At first sight, the interest rate is just smaller. When you move, you not only forfeit the right to the bonus interest, but also a substantial portion of the investment interest that has accrued so far because the building society actually retroactively pays lower interest on the deposits already made. This so-called tariff conversion amount and the lost bonus interest are nothing more than additional costs for the building society loan. Only these are not included in the effective interest rate of the supposedly cheaper loan. If you did the math correctly, an interest rate of 2 percent could turn into 8 percent. Such a tariff change is rather not advantageous if customers lose claims to credit interest as a result.