Around the 20.04.In 2015, the interest rates for a construction financing with a 5-year commitment were at a historically low 0.4 percent. In the course of June, they rose relatively quickly to ca. 1.3 percent increase. Does this now mean an interest rate turnaround in construction financing? The fact is that yields on government bonds – always an indicator of the development of mortgage rates – have also risen significantly. Sank the yield on the ten-year federal bond of approx. 5.3 percent in 2008 until mid-April, it has multiplied since then and is currently around 0.8 percent. Of course, there is no reason to panic yet. Nevertheless, an interest rate turnaround in construction financing is likely on the horizon.
Interest rate turnaround in construction financing at low levels in the medium term
Even if the expert voices increase that an interest rate turnaround in the construction financing is initiated, this will turn out on a very low level and will not reach the 2 or even 3 percent line for a long time (with 5 year fixed interest rate, good credit rating and average loan-to-value ratio) – in comparison to the interest rate in 2008, when this construction financing still cost around 5 percent. It will be at a very moderate level in 2015, because the indicators such as the current monetary policy of the ECB, the still rather weak economic development in Europe and the U.S., and the inflation figures do not point to a massive change in interest rate policy. Nevertheless, this interest rate turnaround in construction financing is an indication that the historic low interest rate periods are slowly coming to an end.
Your initial financing will expire in the next 24 months? Find out about forward loans now
In principle, a forward loan is a bet on the turnaround of interest rates in construction financing; you already conclude a follow-up financing that begins when your initial contract expires in 12, 24 or 36 months. For this, banks demand certain surcharges – one can expect approx. 0.2 percent premium on the current construction interest rate per year lead time calculate. Who would like to have it particularly surely and neither the nerves nor the time to concern oneself constantly with the development of building loan interest rates, can with a Forwarddarlehen with one up to 24 monthly lead time (and with an interest markup of at present 0.3 to 0.4 per cent) from our view nothing wrong make and besides security buy itself.
Of course, you can still wait and watch how the interest rate turnaround in construction financing continues to develop. But it needs good nerves. With the current extremely fluctuating market – as mentioned, the construction financing interest rate increased between May and June by ca. 0.9 percent on a 5-year construction loan – are 0.4 percentage points (i.e., the additional cost of a forward loan with a two-year lead time) up times fast.
If the interest rate turnaround in construction financing actually occurs, a provider comparison is mandatory
Especially in such times of change, some providers try to capitalize on the media sentiment to increase the interest rates for construction financing beyond the usual level. Others are trying to offer very favorable rates for as long as possible to lock in customers quickly before the entire construction financing market turns around.
But the planned term of the forward financing is also a criterion that leads to different interest rate offers. We advise to aim for the longest possible terms even with a forward loan, as the current and medium-term expected interest rates continue to be very favorable. But the market shows that from provider to provider currently very different forward offers with long terms are on the market, which also fluctuate in the currently nervous market very much. Therefore you should the consulting discussion with a bank-independent direct and/or. Search online construction financiers – of course without obligation and free of charge.
For whom is forward financing suitable now??
Primarily for those who need follow-on financing in the next 24 months. The interest rate premiums that will then be due are so moderate that you can't really go wrong. Although interest rates may fall again in the short term – from today's perspective, this window is very small and more than 0.4 percent is definitely not to be expected.
Even those who may not need follow-up financing for another 36 months, it pays to take out a forward loan at the present time, who build on security and do not want to constantly monitor the nervous markets to miss the right time to conclude. Since the construction financing interest rate is at extremely favorable levels compared to 8 – 10 years ago, the current timing is certainly not wrong and you can then immediately include more redemption (with a constant monthly interest and principal payment), which brings faster debt freedom.