Combination loan – annuity loan meets variable construction financing

Posted on by

Combined loan

Most people who are interested in construction financing are familiar with the classic annuity loan. Only a few people have heard of variable construction financing and almost no one knows that there are combination loans that combine both. Interest comparison clears up over variable loans and the advantages and disadvantages of such combination loans.

Variable construction financing

This is a type of financing that promises the greatest possible flexibility. Especially in the Anglo-American area this concept is used very often. The principle behind this is explained quite quickly: There is no interest rate fixing in the classical sense, but the interest rate to be paid is based on the EURIBOR. The EURIBOR is the interest rate that European banks grant each other in order to give each other loans. This is published daily new and is visible for everyone. The orientation to the EURIBOR takes place in such a way that (as a rule) the interest to be paid on the variable loan is adjusted every 3 – 6 months. On the adjusted interest rate still comes a surcharge and a handling fee. This is then used to calculate the valid interest rate for variable construction financing.

Use flexibility for combination loans

From the flexibility a variable loan is unsurpassed. At each adjustment date of the interest rate, free unscheduled repayments in any amount are payable without any problems. Early repayment penalties, which arise with a classical annuity loan with premature full redemption, do not exist here. This flexibility can now be tied to traditional construction financing in a combination loan:

  • Part of the total loan is concluded as a classic annuity loan with a fixed term and fixed interest rate.
  • The other part is a variable loan.

Together, this results in a combination loan, half of which is secure and plannable and the other half of which includes more flexible special benefits.

Combination loans require constant monitoring of the market

If you have chosen a classic financing, you can usually lean back, at least until the end of the fixed interest rate, because everything is settled in advance. A combined loan consisting of an annuity loan and variable financing, on the other hand, requires constant monitoring of the market. It can theoretically happen that the EURIBOR shoots up sharply and thus the interest rate adjustment would cause high additional costs. Then he must act quickly and either repay the variable loan in full or convert it into a normal annuity loan.

For whom is a combination loan useful?

Especially for those who do not want to give up a certain amount of security and planning, but still need a lot of flexibility. For example, if one knows exactly that during the term of the construction financing a larger amount of money will be available (z.B. a life insurance policy or an inheritance) that would go beyond the scope of an unscheduled repayment of the annuity loan, one can certainly profit with a combination loan.

As an example, consider the following scenarios:

Person A takes out a simple annuity loan for 150.000 euros. His bank allows him to make unscheduled repayments of maximum 15.000 euros per year. If he now receives an inheritance in the amount of 50.000 euros, it can be 15.000 euros of it repay and 35.000 euros lie in the bank and do not even bring in interest at present. In the following year he can again use 15.000 euros as an unscheduled repayment and the account still has 20.000 euros. In order to be able to use the entire inheritance, it requires thus altogether four years.

Person B, on the other hand, has a combination loan of 75 each.000 Euro concluded. Also it receives an inheritance at a value of 50.000 euros. He puts this completely into his variable financing and can use thus the full inheritance at one time correctly.

So you see, a combination loan can save real money, since person A cannot use the inheritance received in its entirety and thus must continue to pay interest on a residual debt that he could actually minimize financially.

Biggest disadvantage: A combination loan ties to the bank

Although there is a lot of talk about flexibility here, in one fact the combined loan is extremely restrictive: The customer commits himself to the bank until the end of the annuity loan. If you find another financier who offers the variable part at a more favorable interest rate, he would have to be registered in the second rank in the land register. This increases the risk of the bank to receive the remaining debt in the event of an impending foreclosure and many will not accept it then.

Not every bank and also not every credit mediator will refer to the possibility of a combination loan. If one thinks of itself that it is the right approach, one should ask directly for it and be advised. The basic prerequisite is that a credit broker offers variable construction financing at all. The ACCEDO AG for example belongs to these offerers. It should be noted: Generally, one benefits from variable construction financing and thus also from combined loans rather in times of falling interest rates, but these rise again and the variable portion can quickly cost more than you can save through the unscheduled repayments.