A typical building block of real estate financing is the building society savings contract. With the classic variant, the customer initially saves a few years’ credit and then receives a loan. This type of building finance has been in Germany since the 19th century.
Building savings is based on the basic idea that joint savings lead faster to the goal – your own property. If you want to build in the future, you will sign a home savings contract, into which you will regularly save money. At the same time, many other thousands of home savers pay into this pot. After a certain time, the member receives the saved money plus interest back and has thus acquired the right to call up a low-interest loan. The process of building savings basically consists of four phases
Conclude the building society contract
When concluding the contract, the customer decides on a specific construction rate and the amount of the construction savings. The home savings sum results from the minimum savings plus the future home savings loan. It determines both the closing fee – 1 percent of the home savings sum – and the monthly repayment rate. Right at the end, the interest for the credit saved by the customer is fixed and, as a rule, also the loan interest for the loan taken out in the future. In this way, the home saver receives interest security in advance.
Save the credit
In the savings phase, home savers regularly pay into their savings plan until the agreed amount of the minimum credit – usually 40 percent of the home savings sum – is reached. This usually takes about 5 to 7 years, but there are also tariffs with a shorter savings phase. Depending on the financial situation, the home saver can usually also make special payments, which shortens the savings phase. The final fee will be offset against the first savings payments.
Allocation of the loan
In the allocation phase, the customer waits for the payment of his home loan. If he has reached his minimum savings balance and the valuation number, the conditions for the allocation of the loan exist. The allocation is not automatic, however, but can take a few months, since the payment also depends on how much money the building society has available on certain allocation dates. Depending on the overall level of customer loyalty and how many new savers the building society was able to recruit during the term of the contract, it has funds that it can use accordingly for loans.
The loan phase
In the loan phase, the home saver repays the loan from the building society. The installment to be paid is made up of the interest fixed at the time the contract is concluded and the repayment. In most cases, it is specified in the tariff provisions as the thousandth of the home savings sum. Since the borrower has to repay the loan amount much faster than with a mortgage loan, his rate is usually significantly higher than with one.
The prerequisite for the loan is that the customer has appropriate collateral and that he can demonstrably use it for residential purposes. The customer also pays a loan fee, which is around two to three percent of the loan amount. Loan interest and repayment are fixed for the entire repayment period, which often lasts between seven and ten and a maximum of 12 years.
Since the repayment rates for home savings loans are comparatively high due to the shortness of the repayment phase, classic home savings financing should only be one component in the financing mix. In addition, the following applies: If possible, don’t calculate the amount of the home savings at a fixed time, but always with a capital buffer of one quarter. It is best to plan the contract only when it is ready for allocation and the money will be available shortly.