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How a "Bausparvertrag" can help you avoid high interest rates for refinancing

Worried about the future interest rate on your mortgage? We have some solutions that can minimize your interest rate risk!
Dr. Chris Mulder

Dr. Chris is a former Senior Economist and Manager at the IMF and The World Bank. He is a Hypofriend Co-founder.

Published on Nov 9, 2022 Published on Nov 9, 2022 . Updated 8 months ago

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Dr. Chris is a former Senior Economist and Manager at the IMF and The World Bank. He is a Hypofriend Co-founder.

Are you worried about interest payments on your mortgage ballooning after your fixed interest rate period expires? There are some good options that can help you minimize the risk of higher interest rates.

The key points

  • With a so-called Bausparvertrag you can lock in your interest rate in a very attractive way, when your fixed rate ends in 6-10 years.
  • If you have a longer period till your fixed interest runs out, then you are better off saving in the form of a Private Pension Plan. You are likely to save more that way and can use the proceeds to pay-off your mortgage or let the pension plan run and then use it for your pension or other plans.
  • In any case do NOT repay your current low interest mortgage faster. That is like throwing a way money. Ask your mortgage advisor to show you what difference it makes. In principle repaying your mortgage earns you the interest rate on your mortgage (e.g. 1%). A BSV can earn you about 2-4% in a quite assured way. A Private Pension Plan can earn you over 6% after tax and cost, but the shorter you hold it the greater the lower the volatility.