Is it worth

Forward Loan: What Is It? When is it worth it?

Anyone who takes out a home loan in times of low interest rates could run into a problem with the next loan. Because until then, the interest rate level may be significantly higher. A forward loan can help.

Anyone who takes out a real estate loan usually needs a second sooner or later. If the interest rates are cheap, it can be worthwhile to take out this follow-up loan early - even if it will only be due in a few years.

This variant of follow-up financing is called forward loan. We explain how the loan works, when it is worthwhile and what else you should consider.

What is a Forward Loan?

A Forward Loans ("Advance Loan") is a form of Follow-up financing. It consists of a common annuity loan, i.e. a loan that you repay in constant installments, and a fixed interest rate that you can choose freely.

You can use it to get the secure current interest rates for the future. That means: even before your current fixed interest rate expires, you will know the terms of your follow-up financing. In return, you have to have one Surcharge on the interest numbers. Basically, the following applies: the longer you have the current interest rate fixed, the higher the so-called Forward surcharge.

A forward loan is possible with a Lead time from six months to five and a half years. You can secure the follow-up loan this far in advance, but do not pay any installments during this time. Only when the fixed interest rate on your current loan has expired does the forward loan take effect to continue financing your remaining debt.

When is a forward loan worthwhile?

A forward loan is interesting when construction rates are currently low and it is to be expected that interest rates will rise in the future. Whether it ultimately pays off depends on the extent to which interest rates rise. If they tighten so strongly that the interest rate is above the forward premium, if you replace the old loan, your bet has paid off.

If, on the other hand, the interest rate stagnates or even falls, the follow-up loan has not paid off. But you still have to lose weight.

Whether a forward loan is worthwhile for you personally does not only depend on whether you have saved money on the bottom line. Also you Need for security matters and should be factored in. The more you want security for your mortgage, the more this type of follow-up loan makes sense.

What does a forward loan cost?

Like any mortgage loan, a forward loan has a cost because you have to pay interest. In contrast to the classic construction loan, this type of follow-up loan comes with the Surcharge that the providers charge because you grant the current interest rate in advance. The longer the waiting time between taking out the loan and paying out the loan, the higher the premium (see above).

Does the fixed interest rate of your current home loan run in twelve months According to the independent financial consultancy FMH, an average of 0.072 percent more interest is due on the forward loan. With a lead time of two years the surcharge is 0.213 percent and three years at 0.354 percent (as of March 2021).

What are the advantages and disadvantages?

A forward loan has some advantages but also disadvantages. You can find them all at a glance here.

Interest rate security: You arm yourself against rising interest rates.Interest surcharge: The bank can pay for the waiting time between the conclusion and payment.
Planning security: You know at an early stage what conditions you can expect.Duty to take delivery: You have to take the forward loan - even if the interest rates haven't risen at all.
Possible interest rate advantage: You secure favorable interest rates and benefit if the interest rate level rises.Possible interest disadvantage: If your bet on rising interest rates doesn't work out, pay more.

How do I get a forward loan?

You can only get a forward loan within one certain period complete that Forward period, also called lead time. The earliest possible is five and a half years before your current home loan expires. The latest time is six months before the end of the current loan.

Important here: Compare the conditions of different providers well with each other. Even a small difference in the interest rate can save thousands of euros. Just contacting your house bank can be a disadvantage.

Because that is usually based on the value that the property had in the initial financing, while a new provider with the current value calculated, which should be higher than when you bought it. Plus, you've already paid off some of the debt, which lowers the borrowing from a new provider - and lowers the interest rate.

Good to know: Since a forward loan is follow-up financing, you cannot use it as a first construction loan. So you can't get a forward loan because you might want to buy a home in two years.