Securing low interest rates for future loans! A guide to getting the best deals.
Securing the Future with Forward Loans: A Guide for Home Buyers
A forward loan in real estate financing is a type of mortgage arranged in advance of actually purchasing a property. This mortgage secures current interest rates and lending terms that will apply when the borrower eventually buys the home.
Forward loans are beneficial when you want to lock in a mortgage interest rate before buying, potentially protecting against future rate increases. They are also suitable for those with a clear purchase timeline and no need for cash at closing beyond typical costs.
Securing a forward loan can offer planning security and savings on rising interest rates. However, it comes with risks, such as the possibility of interest rates being lower when the loan is paid out, being locked into a specific provider and interest rate, and an interest surcharge for long-term reservation.
The lead time or forward period for a forward loan can vary, with some banks allowing up to 5 years and others only offering 2 years. The interest rates for a forward loan are decided by the financing bank itself and vary. The surcharge is usually less than 0.05%.
The costs of a forward loan depend on several factors, including the amount of the loan, the desired term of the forward loan, the agreed interest rates, the duration of the forward period, and the amount of the interest surcharge. Since 2022, mortgage interest rates have risen significantly, with slight reductions only occurring towards the end of 2023. It is unlikely that interest rates will permanently decrease.
To conclude a forward loan, consider the interest rate development, request offers from various banks, contact your house bank, and consider rescheduling if necessary. With a forward loan, you have the choice between a renewal (the follow-up financing with the current bank) and a reswitching (the change to a new provider).
In the example given, a forward loan saved around 20,000 € in interest costs at the end of a 15-year interest period when interest rates increased. A forward loan is a loan that is contractually agreed with the lender in advance of its payout, allowing for the securing of the current valid interest rate up to 5 years.
Weigh the pros and cons carefully to see if a forward loan is right for you. It can provide planning security and savings on rising interest rates, but it also comes with risks. Seek advice from a financial advisor or your bank to understand the best option for your situation.
A calculator can be useful when comparing the costs of a forward loan with those of traditional mortgages, aiding in personal-finance management. In the world of business, a clearly defined financial strategy that includes potential forward loan usage can help secure a stronger financial future.
