Interest rates are rising rapidly
Which fixed interest rate is best now?
05/12/2022, 09:09 (updated)
Especially in times of dramatically rising interest rates, extremely long fixed-interest periods could be worthwhile. However, customers must also keep other factors in mind when choosing their bank, according to the experts at FMH-Finanzberatung.
This has never happened before. In less than six months, building interest rates in Germany have more than doubled: since Christmas 2021, they have risen from an average of 0.9 to 2.5 percent. And there is no end in sight to the upward trend. On the contrary.
This poses a number of problems for customers who currently need financing. Not only do they have to try to get the cheapest possible loan as quickly as possible. They also have to think about how they can arm themselves for the interest rate caprioles that are still to come, and choose the appropriate fixed interest rates.
Arithmetic helps – but only to a certain extent
Let’s assume a customer buys a property for 500,000 euros and needs a loan of 350,000 euros. He chooses a fixed interest rate of ten years and repays three percent of the loan amount per year. According to the FMH database, he would have to pay a monthly rate of 1502 euros for the cheapest provider (as of May 2022). The borrowing rate would be 2.15 percent. After ten years, however, our customer would still have debts of EUR 232,975 – and possibly a problem with follow-up financing. Depending on how high the interest rates are in 2032.
In order to avoid this dilemma, our customer could also secure an offer for 20 years. The debit interest would then be higher, at 2.65 percent, and the repayment lower at 2.5 percent. But our customer would have the same monthly rate. And after 20 years a remaining debt of 119,575 euros.
Which fixed interest rate is better now?
With the FMH fixed interest rate calculator you can calculate how high the interest rate may rise after ten years, so that both variants come up with the same residual debt after 20 years at the same rate. In our example, this borrowing rate is 3.71 percent. This means that anyone who believes that interest rates will be more than 3.71 percent in ten years should definitely choose the fixed interest rate period of 20 years.
In any case, everyone who opts for the long fixed interest rate has more planning security with the same monthly burden without any significant risk. Because after 10.5 years, every customer has a statutory right to terminate the loan, which they can use if interest rates should be lower again.
Nevertheless, it is worthwhile to compare the conditions of the long-term loans carefully. On behalf of ntv, FMH-Finanzberatung has therefore determined where buyers are currently getting the best interest rates for loans with a fixed interest period of 20 or even 30 years.
Stay safe and flexible
However, it is important not only to pay attention to the interest rates when concluding such a long-term contract. In its analysis, FMH therefore also very much considered the flexibility in the form of special repayments and changes in repayments. They enable customers to react to positive or negative financial changes within this very long time. If you take a close look here, you can secure very advantageous offers even in these difficult times.
Among the banks and insurance companies, Signal Iduna, DEVK and Postbank shine with the 20-year fixed interest rate. All providers deserve a “very good” or “good” from the intermediaries.
If you want to protect yourself for 30 years, it is best to go with one of the brokers who have been rated as very good. With two percent repayment per year, the rate for a loan of over 350,000 euros is just 1475 euros per month in order to be debt-free until the end of the fixed interest period.
In this constellation, the interest rate would have to be 4.35 percent after ten years in order to achieve the same figures as with the 30-year fixed interest rate. This scenario is conceivable – but in the end, in addition to the sheer mathematics, your own need for security will also decide.
You can find the current long-term interest rates here in the ntv building loan comparison.
(This article was first published on Monday, May 09, 2022.)
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