Bausparvertrag With Lowest Mortgage Rate
Interest rates for real estate financing have quadrupled in Germany over the last months. Is this the right time to secure the lowest possible mortgage rate with the best Bausparvertrag now? 🤔
Table of contents
Introduction: How Good Is a German Bausparvertag?
In January 2022 in which real estate financing interest rates in Germany were still at 0,x% we published this article and video explaining the German Bausparvertrag and mostly the negative side of it. Six months later the world changed in many aspects and the German real estate (financing) market changed with it. Makes us wonder: How good is a German Bausparvertrag now with interest rates increasing almost every single day? 🤔
Summarizing our earlier Bausparvertrag post from the beginning of 2022 we determined two good reasons why someone wants to start Bausparen:
- You know 100% that you will buy a property in Germany in the future
- You think that mortgage interest rates will rise to at least +3% or +4% in the next 10 or 20 years
Under those two assumptions, it can make a lot of sense to get a Bausparvertrag as a tool to secure a low-interest rate in the future. As one of those two facts mentioned above turned out to be true with current financing rates at +3%, let us take a look at the background of why interest rates increased so much as well as how a Bausparvertrag can protect you against these high-interest rates.
Why Interest Rates In Germany Skyrocketed By 1.500%
The tremendous increase in German mortgage interest rates can be seen in the chart of the German Bundesbank below. Yields of 10-year German bonds increased by 1.500% since late December 2021 as of writing this article. The root cause of this never seen before rising in interest rates is the result of the following facts in a causal relationship:
- Inflation in the Euro Area surged in the latter half of 2021 to unprecedented highs never seen since the introduction of the Euro in 1999. Current inflation levels of 8,1% in May 2022 (up from 7,4% in April 2022) mark 40-year highs in Europe (see our general inflation calculator or the personal inflation calculator of the German Federal Statistical Office to calculate the impact of inflation on your individual financial situation).
- When Russia invaded Ukraine in February 2022, inflation rates across the globe increased even further as war led historically speaking always to higher inflation rates. While the European Central Bank was estimating that the Euro area inflation rate will calm down over 2022, the exact opposite happened when the war in Ukraine started.
- The ever-rising inflationary pressure made the ECB consider raising its key interest rate from 0% after it has been at this historically low level for over 7 years. As of writing this article, it looks like the ECB will raise interest rates in July by 0,25% or 0,5% in order to bring inflation back to their 2% target over the medium term.
- While many people were thinking that rising mortgage rates and fear of war in Europe would lead to falling property prices (like the stock market or cryptocurrency), the unimaginable happened and property prices in Germany went up faster than ever before. The uncertainty that came with the war led to investors fleeing into the “safe haven” of real estate & the rising interest rates boosted people’s appetite for properties even more before the next rise just a couple of days later.
These 4 facts that built on each other made German banks raise their mortgage interest rates simply for the fact that they can afford to do so. Investors buying investment properties or people buying a home have a tremendous demand for properties despite the fact that mortgage rates have become unfavorable. The result and its full effect on German interest rates can be seen in the chart below.
While PerFinEx was financing real estate for clients as low as 0,65% interest in the summer of 2021, mortgage interest rates have increased to almost 3,5% for clients with a very solid financial situation. That change in interest rate is just one factor of many that are most likely going to change in the near future when financing real estate in Germany.
Real Estate Financing In Germany In The Near Future
The evolving conditions discussed above allow us to project how real estate financing will develop in the upcoming weeks and months. There is of course no guarantee that projections will turn out to be true, we can make educated assumptions based on the world around us only. And never forget the most important rule of personal finance or investing: Past performance is no guarantee for future results. 🤓
Mortgage interest rates that we have seen in Germany in 2020 and 2021 of 0,x% are most likely gone for the foreseeable future. Because of the huge demand for properties and financing German banks simply can afford to increase their interest rate and generate more profit. When inflation and the war calm down we might normalize at 1,x% or 2,x% mortgage rates but probably not anytime soon at the historic lows of 0,x% again.
In many of our past articles and videos, we recommended 100% financing in terms of loan-to-value (if possible) and suitable for your given personal financial situation and real estate strategy. As property prices in Germany continue to rise, 100% financing is probably over as well as banks start asking for small down payments (e.g. 10% equity on top of the notary fees + ground purchasing taxes). If you have a very high income, high assets, and no debt, you might still be able to finance 100% of the property value. But for the majority of people, a small down payment is probably required in the future.
How To Secure 0,99% Loan Interest Rate With Bausparen
The major benefit of a Bausparvertrag is the secured interest rate in Bauspar loan phase 3. At the moment you are signing your Bauspar contract you are guaranteeing all conditions: Savings interest rate in phase 1 as well as loan interest in phase 3. Fixing a low-interest rate years or decades in advance is a major benefit in times like these with interest rates rising almost on a daily basis.
Bausparen is still not the greatest option when it comes to saving equity for a future real estate purchase as the savings interest rate is usually 0,1% per year (and even that minimal of a return is subject to capital gains tax). The other 5 ways to build equity in this video are more efficient and will allow you to buy your dream property faster. You should probably only get a Bausparvertrag for yourself with the interest in mind to secure the extremely low mortgage rate in the future.
Example calculation of a Bausparvertrag:
- 300€ monthly investment in Bauspar savings phase 1
- 100.000€ Bausparvalue (“Bausparsumme”) that we have to save 30% – 50% before being eligible for a mortgage
- 10 years of saving (300€ * 12 months * 10 years = 36.000€) which allows us with some Bausparverträge to enter loan phase 3
Same exemplary Bausparvertrag in loan phase 3:
- Repaying 346€ monthly over 14 years & 10 months will result in a 2,29% mortgage rate
- Repaying 471€ monthly over 10 years & 3 months will result in a 1,99% mortgage rate
- Repaying 666€ monthly over 6 years & 11 months will result in a 1,49% mortgage rate
- Repaying 864€ monthly over 5 years & 2 months will result in a 2,29% mortgage rate
As the fundamental idea of a Bausparvertrag is built on the community that saves together towards their individual dream properties, your Bauspar community will reward you the fast you back your loan to the benefit of the other people in your community. Hopefully, the examples above show you how you can make the most of Bausparen if you plan your liquidity well enough in loan phase 3 (towards the maximum monthly amount you want to pay or can pay).
Conclusion: Should You Get A Bausparvertrag?
Based on our example Bausparvertrag calculated above we can draw three conclusions:
- Your monthly liquidity needs to be planned very well decades in advance before signing a Bausparvertrag. Securing a 0,99% interest rate is great, but it also requires you to pay almost 3x as much in loan phase 3 as you were paying in savings phase 1 of your Bausparvertrag.
- On top of your liquidity, you need to select the right type of Bausparvertrag out of the +16 different options available on the German market (some Bauspar companies offer plans with a 2,99% mortgage rate only). Feel free to reach out to us on WhatsApp if we can help you find the best Bausparvertrag for your personal situation.
- If you would like to secure a Bausparvertrag for yourself, do it fast! As the 0,99% mortgage interest rate is far away from the overall market interest rate, it is certainly possible that Bauspar companies start raising their mortgage rates. Get a Bausparvertrag reasonably quick if you want to save as much money as possible with the least amount of interest possible while repaying your real estate loan.