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Building savings: useful despite low interest rates?
Building savings: useful despite low interest rates?
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Anyone who now needs a loan to buy a property will receive conditions more favorable than ever before. Building savings is therefore also useful in times of low interest rates. The best thing about it: Building savers can even preserve this advantage in the long term.

Table of contents Table of contents Building savings despite low interest rates: sensible or not?

  • What is a home savings contract?
  • How does a home savings contract work?
  • How much does a home savings contract cost?
  • What options does a home savings contract offer?
  • Building society saves the historically low interest rate level
  • Does the rise in interest rates affect home savings?
  • Smart and sensible building savings
  • What the zero interest rate policy means for home savings
  • What does the low interest rate environment mean for the home savings system?
  • Can you rely on interest rate hedging even if interest rates rise?
  • An interest rate hike is not foreseeable for years to come. Isn't interest rate hedging superfluous?
  • Is home savings still sensible and above all safe?

Table of contents Table of contents Building savings despite low interest rates: sensible or not?

  • What is a home savings contract?
  • How does a home savings contract work?
  • How much does a home savings contract cost?
  • What options does a home savings contract offer?
  • Building society saves the historically low interest rate level
  • Does the rise in interest rates affect home savings?
  • Smart and sensible building savings
  • What the zero interest rate policy means for home savings
  • What does the low interest rate environment mean for the home savings system?
  • Can you rely on interest rate hedging even if interest rates rise?
  • An interest rate hike is not foreseeable for years to come. Isn't interest rate hedging superfluous?
  • Is home savings still sensible and above all safe?

The question of whether building society savings make sense when interest rates are low is always unsettling. Nevertheless, home savings is very popular in Germany. According to Finanztip, there are currently around 27 million contracts (as of 2019) - around three quarters of German households. In the following, we will answer whether building savings is suitable for you and what you need to consider.

What is a home savings contract?

With a home savings contract, you can finance the purchase, construction or modernization of a house. To this end, building society savers regularly deposit at a building society and process their deposits and withdrawals. Interest is guaranteed for a long time.

How does a home savings contract work?

First, you need to set a home savings amount that corresponds to the amount you want to invest in your property. In most cases, however, the home loan savings contract only makes up part of the entire financing. As a rule, you first have to save about 30 to 50 percent of the total. After about ten years, you can take out the loan.

However, you don't necessarily have to choose a loan. You can also have the saved credit paid out - the contract is hereby terminated. Another option is to simply save further, in which case you have a reduced right to a loan, but at the same time the credit continues to earn interest. However, the building society can terminate it ten years after the contract has become “ready for allocation”.

How much does a home savings contract cost?

As a rule, you have to pay both a closing fee and an account management fee for a building society savings contract. The acquisition costs amount to approximately 1.0 to 1.6 percent of the home savings sum. For the account you have to expect about 24 euros per year.

What options does a home savings contract offer?

If you definitely buy a property later and therefore want to secure the low interest rates, you should conclude a normal building society contract.

Another option is immediate home loan financing. This type of building society savings is useful if you want to have fixed interest rates in the long term. Often, immediate home savings financing comes into question if the home savings contract is either not yet ready for allocation or the home savings sum is too small to finance the property. The concept usually consists of a building loan contract and a building loan: The building loan is a so-called final loan, which means that you pay interest on an ongoing basis, but the repayment is only due at the end - but then all at once.

The last option is a savings contract. Many contracts include an interest bonus if you choose not to pay the loan. However, the costs are significantly higher than with the other alternatives.

Building society saves the historically low interest rate level

Building savings can prove to be particularly useful, particularly in the low interest rate environment. Consumer advocates like Stiftung Warentest repeatedly emphasize this. Because with a home loan savings contract, real estate financiers can secure the current interest rate right down to the last installment - even if it is only due in 20 or 25 years.

Long-term interest rate hedging is even of existential importance for households that could no longer support their financing if the interest rate rose significantly. After years of falling, it has almost been forgotten that interest rates can also develop in the other direction. But at the end of 2016 we got an impressive demonstration. In a short space of time, the reference interest rate for interbank transactions in the euro area rose from 0.25 percent to 0.76 percent with a ten-year commitment period (as of December 1st, 2016). This so-called euro mid-swap, an important market indicator, has tripled from its low in a short period of time. Such changes in the interest rate markets will affect the conditions for housing loans with some delay. Builders and property buyers should be prepared for higher financing costs. Long-term interest rate hedging is now particularly important, the LBS also communicates in its current video on the subject.

Does the rise in interest rates affect home savings?

The interest on construction loans is usually fixed for five, ten or fifteen years. After the fixed interest period has expired, the conditions for the remaining loan must be renegotiated with the bank. If the interest rate level on the capital market rises again, there may be a nasty surprise for home builders. Our calculation example shows that an interest rate increase of two percentage points can make a difference of tens of thousands of euros. If real estate financing is sensibly combined with a home loan savings contract, the current interest rate level can be fixed down to the last installment. This protects builders and property buyers against future interest rate increases.

Einfluss steigender Zinsen
Einfluss steigender Zinsen

The impact that rising interest rates have on the burdens is enormous.

Photo: LBS

Smart and sensible building savings

So it is worthwhile to take advantage of the hour with the current low interest rates. However, a building owner or apartment buyer who is concerned about security does not leave future monthly charges to chance development on the capital market. With sensible building savings, he provides for the time after the fixed interest rate. Because with the then allocated building savings, the remaining debt can be ideally repaid. The great advantage of building society savings: The low interest rates on the loan are guaranteed for the entire term - even if the last installment is only due in 25 or even 30 years.

Home grant

Anyone who builds or buys a home does not only secure a basic need. After all, everyone has to live. He also does something for his old-age provision - thanks to Wohn-Riester there is money from the state. This is particularly worthwhile in times of low interest rates. The European Central Bank's zero interest rate policy makes it difficult for savers to still get interest on low-risk investments. In this environment, government grants have a particular impact. Anyone who takes advantage of the Riester subsidy will also receive a noticeable premium on their savings benefits thanks to allowances. Tax benefits can also be added.

Fixed interest until the last installment

When it comes to paying off a home, residential Riester helps to get out of debt faster. In this way, you can make provisions for old age without having to generate returns on the capital market. Because with Wohn-Riester, the return is the saved rent in old age. And unlike interest rates, rents have risen continuously in recent years. At the same time, Riester building society savers benefit from the fact that they secure favorable loan interest rates in the long term. Because Riester Bausparen enables real estate financing with fixed interest rates down to the last installment. Residential Riester is therefore the right choice, especially when it comes to interest rates.

What the zero interest rate policy means for home savings

The low interest rate has far-reaching consequences for wealth accumulation, old-age provision and real estate financing. Especially for home savers there are many questions in this environment, which we would like to answer below:

  • What does the low interest rate environment mean for the home savings system?
  • Can you rely on interest rate hedging even if interest rates rise?
  • An interest rate hike is not foreseeable for years to come. Isn't interest rate hedging superfluous?
  • Is home savings still sensible and above all safe?

What does the low interest rate environment mean for the home savings system?

Bausparen is based on the idea of ​​saving first and eventually having accumulated enough equity to finance your own home. The paid-in money from the building society collective can then be used until the end for a cheap building society loan with fixed interest rates - this is considered to be particularly secure and is intended to prevent the property market from being shaken by "property price bubbles". But the European Central Bank's zero interest rate policy is a burden on the home savings system. Because all savings deposits that are not granted as loans must be invested by the building society in low-risk securities, which, however, hardly bring any return.

Building societies must act in this situation and try to ensure the balance between building society savers and those who want a loan. This means that customers with older contracts are often offered alternatives. But there is also the option of terminating very old building society savings contracts for which the loan target has already expired. Because a building society contract should not be an unlimited capital investment, but should be used for real estate financing.

Since Bausparen makes it possible to secure the currently low interest rate level in the long term, it is currently very valuable to conclude a contract. In addition, building society savers have the opportunity to take advantage of further subsidies, such as the housing construction premium, benefits with an employee savings allowance and residential Riester.

Can you rely on interest rate hedging even if interest rates rise?

The system of building society savings should enable cheap loans in the long run. The collective consists of deposits, interest and repayments and is monitored and regulated by the building society so that sufficient funds are always available for loans.

An interest rate hike is not foreseeable for years to come. Isn't interest rate hedging superfluous?

Nobody can predict how interest rates will change in the coming years, so it makes more sense to secure the low interest rates now.

Is home savings still sensible and above all safe?

The building society savings system is considered to be particularly secure, because the savings are invested by the building society with little risk - this is what the building society law prescribes. In addition, building society savers must have saved enough equity before they can take advantage of their loan. Together with the creditworthiness check when granting credit, this ensures comprehensive risk protection.

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