Use the forward loan to secure favorable interest rates for later
Are you still busy with the financing of your property? With a forward loan as a form of follow-up financing, you can already secure favorable interest rates on the repayment of your remaining debt. How exactly does that work? We explain it to you!
What is a forward loan?
A forward loan is a special form of follow-up financing for your existing real estate loan. You currently have a real estate loan. If the interest rates are just cheap, secure them with the forward loan already now (even before the expiry of an existing fixed interest rate) for your follow-up financing.
The biggest advantage of this follow-up loan: You secure a favorable interest rate level- i thought about this. If interest rates increase in the future, you have saved money in this way.
How exactly does the forward loan work?
A forward loan is essentially nothing more than an annuity loan, and it works the same way: You agree on certain conditions with your bank. These include a fixed rate of interest and a certain term. It then calculates the amount of your installment that you pay monthly. When can you make such a loan? That’s the special thing about this form of follow-up financing. You can close the loan up to five years before the expiration of the existing loan agreement. If you have done that, the contract is of course binding. It is paid out when the fixed interest rate has expired. The time between the conclusion of the loan and its payout is called the forward period. For this period, banks charge the borrower an interest premium. Here, the longer the period, the higher the premium will be.
How is the interest charge calculated?
The interest charge requires the banks to reserve the favorable interest rates. Decisive for its calculation are the following components:
- Amount of the interest rate you want to secure
- Lead time in months
- Calculated premium of the bank
Example: The bank charges a premium of 0.02 percent per month. You choose a forward period of 36 months. The interest rate you want to secure is 1.5 percentage points. This results in the following calculation:
- 0.02% (spread of the bank) x 24 months (lead time) + 1.5% (guaranteed interest rate) = 1.98%
If you get a 1.5% interest rate for 10 years and add the 0.48% interest charge, your borrowing rate will be 1.98% pa in 24 months
When is a forward loan worthwhile?
Since the main purpose of the forward loan is to have a fixed calculation base for the future, it is worthwhile, especially in the current low-interest phase, to conclude a forward loan.
Secure interest rates now for a later date. **
What are the advantages and disadvantages of having a forward loan?
Whether a forward loan pays depends primarily on future interest rate developments. How these behave, can never be predicted with certainty. Nevertheless, to make an informed decision for or against a follow-on financing, you should discuss your project with experts and weigh the pros and cons against each other:
- With the forward loan, you are currently writing down favorable interest rates for a later date and thus have the opportunity to save costs.
- A commitment of the interest rates gives you optimal planning security: With the loan you already know today which monthly rate you have to raise after the expiry of the current debit interest for your real estate financing.
- During the forward period, no provisioning interest accrues.
- If interest rates rise as you expected with the forward loan, you save money. In principle, however, you always carry the risk that interest rates may also fall. In this case, you are tied to the loan and pay the amount of interest you have agreed upon completion of follow-up financing.
- For the reservation of the favorable interest, you pay an interest surcharge.
- They tie themselves to the conclusion of a forward loan relatively far in advance to an interest rate and a provider.
Forward loans for home financing?
A home loan loan is especially worthwhile in two cases:
- The interest rates are particularly low when concluding follow-up financing.
- Interest rates are expected to rise over the next few months or years.