Sunday, 22 February 2015

Financing

Obviously one of the most important aspects is financing the build.  We own our current flat and still have a mortgage on it to pay off, financed by Sparda Bank.  It is at a fixed rate until June 2018 at which point we have to refinance it.  To do this we also have a buildings savings account (Bausparvertrag) where we pay in monthly to build up capital and then at the time the mortgage needs refinancing we can use the capital to secure a loan at the rate we fixed in 2008 when we signed the contract.  At the time this seemed like a good idea but there are two main issues with this:

  1. We secured a rate of about 4% which seemed low at the time but now rates as low as 1.5%
  2. The whole Bausparvertrag is locked in to the mortgage by Sparda Bank meaning it is seen by them as a security on the current mortgage so we can't actually access the money in it without them allowing us to do so.
Our plan is that we keep the flat and rent it out meaning we cover the cost of the payments on the flat with the rental income.  This, however leaves us with the issue of how to use the fairly substantial savings in the locked Bausparvertrag as capital towards the mortgage to push down the interest rates.

Our first appointment was with Sparda-Bank, who financed our flat.  We asked about wrapping both the flat and the house in to one new mortgage so we can release the locked funds.  His response was surprising as he basically said there was no chance of getting out of our mortgage or the locked Bausparvertrag unless we sell the flat and then pay a fee of €17,000 for their lost interest!  He then worked out that if we sell the flat we could finance the house with a new mortgage for around a monthly payment way up in the upper limit of what we want to pay.  We were also surprised that he added in multiple insurances including life and unemployment although we told him we have these already (they totalled over €30,000).  We left Sparda Bank feeling pretty deflated.

The same evening we had an appointment with an independent financial advisor recommended to us by Allkauf.  We told him what we wanted to achieve and he sat with us for over two hours working out the options.  He said we can get to the money in the Bausparvertrag if we can show Sparda that we have taken out a new loan to cover the flat mortgage due in 2018.  We can already sign for this with the current low interest rate meaning the bank has it's security and no longer needs the Bausarvertrag, thus releasing it to us.  We would still have to pay the €17,000 fee however but he also worked out that with the lower interest rate we could actually save more than this so it ended up cancelling itself out.  Total cost for financing the flat and the house would again be at our upper limit per month but we would get about €800 income from rent so the actual monthly cost will be well below our limit and only slightly more than we pay now for the flat.  All the finance would be through ING DiBa bank.  Much better!

Our final financing appointment was with the Volksbank in the village we are moving to.  They are selling the land so wanted to see if they could also help us finance it.  They were very friendly but also said we would have to sell the flat as Sparda wouldn't let us out of the contract.  Even when we told them how the independent advisor had recommended us to do this he still didn't see it being possible, so our mind is made up and we will go with the offer from the independent advisor.

We have now signed the contract and just have to email it to our advisor and he will do the rest.  Hopefully he is right about us getting out of the Bausparvertrag as the whole build is now relying on this being possible.  It will be a nervous few days until all is confirmed.

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