Low-interest phase: Forward loans now interesting?

Mortgage lending rates are approaching their record lows in 2010.

Mortgage lending rates are approaching their record lows in 2010.

With a loan-to-value ratio of 60% and a fixed interest rate over 10 years, loans cost on average 3.02% interest. The conclusion of forward loans could now be worthwhile.

MHG Finance Good, which claims to be independent, estimates that the average interest rate on loans with five-year fixed interest rates will be 2.4%. At fifteen-year fixed interest rates, according to the MHG index, 3.51% interest effectively accrues in the year. Borrowers continue to benefit from the euro debt crisis. The demand for fixed income securities with the lowest possible probability of default (including Pfandbriefe, which banks use to refinance real estate loans) remains high. This drives the prices of the securities, which in turn lower interest rates.

Forward loans are worthwhile if a financing project is in the future and interest rates are expected to rise.

Forward loans are worthwhile if a financing project is in the future and interest rates are expected to rise.

Reliable statements about the future development of interest rates are simply not possible. This also proves a look into the recent past. When interest rates on real estate loans began to rise slowly in the summer of 2010, most economists forecast a long-term increase in interest rates. They did not foresee that the euro debt crisis would increase the flight of many investors to safe havens, thereby depressing interest rates.

MHG Finance Good calculates that a forward dahlem pays even higher probability the lower interest rates already are. If the interest rate dropped from five to four percentage points, borrowers saved one percentage point. A further decline of another 20%, however, would only mean a decline of 0.6 percentage points.
Not only does MHG expect a significant increase in interest rates on real estate loans if the debt crisis is eased in the long term. In that case, many funds would be drained from the safe havens and shifted to riskier assets. Whether and when the debt crisis comes to an end and how this looks in detail, however, is highly uncertain.

The Europe Savingsr Bank (ESB) is loosening its collateral requirements. Commercial banks deposit securities with the central bank, such as securities or loans, and in return receive central bank money. In the future, it should be possible to deposit claims from small loans as security for central bank loans with a term of up to three years. In view of the increasingly dynamic expansionary policy of the central bank, it is not excluded that interventions with a greater impact on long-term interest rates will also be undertaken.

Nonetheless, it is unlikely that the conclusion of a forward loan at the present time will bring any major financial disadvantages. This is especially true if the financing project is no longer too far away, because an additional interest charge on the current market interest rate accrues for each month lead time. Since the conditions of the offerers in the market clearly differ, a detailed comparison of several offers is obligatory.

All information without warranty.

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