Building savings is not financing for the spontaneous. To avoid this, building societies sell their building society savers with a final loan.
The building societies then advertise with fantastically low effective interest rates, which bring you into your own four walls. Banks and building societies advertise building savings in a similar way. But be careful! When it comes to building savings, there is almost always trickery.
The principle of building society savings with a final loan
Let us take a closer look at building society savings as financing. If you opt for building savings, you can generally not build or buy a property immediately. The reason for this is that a home savings contract must first be saved before it can be allocated. Because building savings means “save first, then build”. The problem is clear. A building loan that cannot be used in the foreseeable future is not very popular.
To avoid this, banks and building societies offer so-called final loans in connection with building society savings. With a final loan, the time of the savings phase for your building society contract should be bridged. With this final loan, the customer can immediately fulfill his dream of owning a home. If the building society savers, insofar as they are ready for allocation, the final loan replaces the building society contract. So far so good. But there are some catches.
What does home savings cost with a final loan?
In most cases, home savings with a final loan is much more expensive than a traditional bank loan. Why? In the savings phase, the customer has to pay the building interest for the final loan as well as his building society saver. The credit in a building society savings contract usually has an interest rate of one or two percent.
At the same time, the customer pays interest on his final loan. These are four to five times higher than the credit interest in his building society contract. The home loan savings contract cannot make up for this difference in interest rates. Not even through a very cheap building rate. This is one reason why home savings are not as cheap as is generally believed.
Building savings can hardly be seen by a non-specialist. But it gets even better. Stating banks and building societies about effective interest rates is only half the truth. Let’s do a little example.
Mr. Meyer decides to save money. He gets a building loan from his building society of 100,000 dollars. Mr. Meyer can immediately buy his property and move in. He pays 17 and for that. 2 months a total rate of 739 dollars. Objectively and economically, it is only a loan contract.
But on closer inspection, there are two figures on the effective interest rate. 5% for the repayment-free loan and 2% for the subsequent home loan. What do you think? What is the effective interest rate in reality? If you believe that the effective interest rate must be between 5 and 2%, it has already fallen into the trap. The real effective interest rate is around 5.5 to 6%.
How costs are obscured in building savings
The information on the effective interest rate does not mention a number of additional costs that are incurred in building savings. For example, a large part of the closing fee is simply not taken into account. In our example, this amounts to almost 50,000 dollars over the entire term.
This example shows us how far apart advertising and reality are. The bad thing is that almost all banks and building societies work with this trick. But there is still a glimmer of hope. Legislators are obliged to provide state-subsidized Riester contracts with the actual effective interest rate.
In order to make financing comparable with building society savings and a final loan, you need the following information. The offer should be made in writing. It should include the exact effective interest rate of the final loan. So show an effective interest rate for the entire building society contract! It is important that the interest on the final loan is also fixed by the end of the term.
This way you avoid an unnecessary interest rate risk. You also need a detailed repayment plan and a savings plan for the building society contract. Only with this information can financing, with a similar term, be compared between building savings with a maturing loan and a bank loan. If you take this building loan tip to heart, it will also be something with home savings.