There have been times when we in the blog here have advised against using the combination of mortgage loan and building society savings contract. The following constellation is meant: The BC Finance is financed by a mortgage loan – however, the borrower spares at the same time a TimeSavers contract.
Such an approach has advantages and disadvantages compared to classic financing, where only a mortgage loan is taken up and repaid. The biggest advantage is to secure attractive conditions for follow-up financing. Disadvantage is again a reduced repayment, after all, capital flows into the TimeSavers contract rather than the repayment of the loan.
The risk of expensive follow-up financing is increasing
As already indicated, we advised against it some time ago to pay into a home savings contract parallel to the loan repayment. However, in the meantime the general conditions on the market have changed significantly. The interest markets have fallen sharply, never before was construction money so cheap.
Who finances today, must expect that the hypothecary interest in 10 to 15 years are higher than today. This would make follow-up financing more expensive and could noticeably increase the monthly payments. Consequently, it makes all the more sense to hedge against rising mortgage rates.
The cost of interest rate hedging has fallen dramatically
If a home savings contract is saved at the same time, less money is available for the repayment or, if necessary, the repayment is even completely suspended. In times of high interest rates, this made itself noticeably noticeable, ie due to the lack of repayments handsome mortgage rates have accumulated.
Of course, these interest rates would also be incurred in today’s housing loan. However, they have decreased significantly compared to previous periods, which has led to a sharp decline in the overall cost of interest rate hedging. For example, those who only have to pay interest of one and a half percent are relatively easy to pay into a home savings contract. About ten years ago, the interest charge would have effortlessly cost three to four times that amount.