Around the 20.04.In 2015, interest rates for a construction loan with a 5-year commitment were at a historically low 0.4 percent. In the course of June, they are relatively fast to ca. 1.3 percent increase. Does this now mean a turnaround in interest rates 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 of the ten-year federal bond of ca. 5.3 percent in 2008 to 0.07 percent in mid-April, it has multiplied since then and currently stands at around 0.8 percent. Of course, there is no reason to panic yet. Nevertheless, an interest rate turnaround in construction financing is likely in the long term.
Interest rate turnaround in construction financing at a low level in the medium term
Even if the expert voices are increasing that an interest rate turnaround in construction financing has been initiated, this will be at a very low level and will not reach the 2 or even 3 percent line for a long time (with a 5-year fixed interest rate, good credit rating and average loan-to-value) – compared to the interest rate in 2008, when this construction financing still cost around 5 percent. It will remain at a very moderate level in 2015, as indicators such as the ECB's current monetary policy, the still rather weak economic development in Europe and the U.S., and 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 historically low interest rate periods are slowly coming to an end.
Your initial financing expires in the next 24 months? Inform now about forward loans
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 range from approx. Calculate 0.2 percent premium on the current construction interest rate per year lead time. If you want to be particularly safe and have neither the nerve nor the time to constantly monitor the development of interest rates for construction loans, you can't go wrong with a forward loan with a lead time of up to 24 months (and with an interest rate premium of currently 0.3 to 0.4 percent), in our view, and you can also buy security.
Of course, it is still possible to wait and see how the interest rate turnaround in construction financing continues to develop. But for this you need good nerves. With the current extremely fluctuating market – as mentioned, the construction financing interest rate rose between May and June by ca. 0.9 percent for a 5-year construction loan – 0.4 percentage points (i.e. the additional cost of a forward loan with a two-year lead time) is quickly reached at the top.
When the interest rate turnaround in construction financing actually occurs, a provider comparison is imperative
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 try to offer very favorable rates for as long as possible in order to retain customers quickly before the entire construction financing market turns around.
But also the planned term of the forward financing is 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 are currently very different forward offers with long maturities on the market, which also fluctuate greatly in the currently nervous market. That's why you should discuss the consultation with a bank-independent direct or. Online construction financier search – of course without obligation and free of charge.
For whom is a forward financing now suitable?
First and foremost for those who need follow-up financing in the next 24 months. The interest rate premiums that are then due are so moderate that you can't really go wrong. It's true that interest rates may drop again in the short term – from today's level, but 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 this time, which build on security and do not want to constantly monitor the nervous markets to miss the right time to close. Since the interest rate for construction financing is at an extremely favorable level compared to 8 – 10 years ago, the current time is certainly not wrongly chosen and you can then immediately include more repayment (with constant monthly interest and principal payments), which brings faster debt freedom.