Loan interest rates rise. Conclude a loan agreement now or would you rather wait? Heike Nicodemus from Finanztest gives tips.
Many a financial life plan gets thoroughly messed up when the home suddenly becomes significantly more expensive due to the rapidly increasing interest on loans. The current issue of Finanztest magazine deals with the subject. Heike Nicodemus is a scientific project manager at Finanztest and explains in the SWR1 interview what needs to be considered when financing.
Photo: Stiftung Warentest
SWR1: home, over, panic. We had historically low interest rates for more than a decade, which led to a real construction boom. And now loans are becoming more and more expensive, and the turnaround in interest rates could become a problem for some. Ms. Nicodemus, what is your advice to people who are now planning financing?
Heike Nicodemus: Of course we don’t have the crystal ball either. The fact is: interest rates have more than doubled. A year ago, interest rates were much lower. Now they are very expensive. This means that you have to take a very close look and calculate – and of course compare. We do not know if interest rates will continue to rise. At the moment, however, it does not look as if they will go down blatantly. If you have the money, the property, if you want to build the house, you should do it. But of course always with the proviso: take a close look to see if I can afford it.
SWR1: What do you have to look at and what is particularly important to you?
Nicodemus: You have to find out the optimal loan amount first. How much equity can I contribute? The more equity, the cheaper it is of course. It is important to choose the right fixed interest rate. You should always choose fixed interest rates that are as long as possible, i.e. 15 or 20 years. There is a statutory period of notice after ten years, so you really can’t go wrong. Or if you earn good money, can pay the high installments, maybe even take out a “full repayment loan” where you virtually eliminate the risk because the loan has been paid off.
SWR1: That means that you have such a high repayment rate that after the term of ten years it’s definitely over.
Nicodemus: Yes. Ten years is very low. But then after 15 or 20 years it’s over. You always have to pay the same rate. In the end, there is no longer a high remaining amount that you then have to pay off. Sometimes the remaining amounts are very high, so that with a 480,000 euro loan after 15 years you still have a residual debt of almost 300,000 euros. If the interest rate is then ten percent, you have a problem.
SWR1: Speaking of the problem and the remaining debt: Many have concluded at significantly lower interest rates, and now there is often a four in front of the decimal point. Some are now completely stupid when it comes to possible follow-up financing. What is a first aid measure when you realize that this is not enough at all?
Nicodemus: If you agreed to low interest rates some time ago, then you can continue to pay off your loan for ten, 15 or 20 years as cheaply. But if the fixed interest rate ends now, then of course you have to see that you can find reasonable follow-up financing.
SWR1: Is it possible to switch banks in the middle of the financing?
Nicodemus: In any case. You can cancel it after ten years at the earliest, regardless of which fixed interest rate you initially chose. If you are looking for a follow-up loan, you can also switch. This is quite common.
The interview was conducted by SWR1 presenter Steffi Stronczyk.