Home Savings (Home Savings Contract)

Home Savings (Home Savings Contract) - Home savings is a purpose-specific savings and financing model in which the saver first contributes equity to a home savings contract (savings phase) and subsequently becomes eligible for a low-interest home savings loan (loan phase). The building savings contract is concluded with a building savings bank and is restricted to residential purposes.

How Building Savings Works and Its Phases

A building savings contract goes through three phases. During the savings phase, the saver makes regular contributions to the contract until the agreed-upon minimum savings balance is reached-typically 40 to 50 percent of the total savings amount. The balance earns interest at a rate set when the contract is signed, which currently ranges between 0.01 and 0.5 percent. Building societies are regulated by the Building Society Act (BausparkG) and are subject to supervision by BaFin.

Once the minimum savings balance is reached and a sufficient valuation figure is achieved, the contract becomes eligible for allocation. The valuation figure takes into account the duration of savings, the amount of deposits, and the ratio to the building society’s total assets. Allocation is the point in time from which the saver can access the accumulated savings and the building loan. The collective principle of building savings means that all savers save together in a pool-allocation therefore also depends on the overall performance of the savings community.

During the loan phase, the saver receives a loan equal to the difference between the total savings amount and the accumulated balance. The key advantage: The loan interest rate is fixed at the time the contract is signed and ranges between 1.0 and 2.5 percent, depending on the plan. During periods of high interest rates, the home savings contract thus offers effective protection against rising interest rates. The home savings loan is repaid through monthly installments, with the repayment period ranging from seven to fifteen years, depending on the plan.

Government Subsidies

Home savings is supported by several government subsidy programs, which can be combined under certain conditions.

The housing subsidy amounts to 10 percent of the annual savings contribution, up to a maximum of 70 euros per person (140 euros for married couples). The prerequisite is that taxable income does not exceed 35,000 euros (70,000 euros for married couples). These increased income limits have been in effect since 2021.

The Employee Savings Allowance subsidizes capital-forming benefits (VL) paid into a home savings contract at a rate of 9 percent, up to a maximum of 470 euros per year. The income limit is 40,000 euros (80,000 euros for married couples).

In addition, Riester home savers can take advantage of Riester allowances and tax benefits for a Wohn-Riester home savings contract, provided the funds are used for owner-occupied residential property. The basic allowance is 175 euros per year, with additional child allowances.

Building Savings as a Follow-Up Financing Strategy

A use of building savings that is often underestimated in practice is planning for follow-up financing. Anyone financing a property today with a ten-year fixed-rate period can simultaneously take out a home savings contract and lock in the current loan interest rate for when the fixed-rate period expires. This works via the so-called advance loan in combination with a home savings contract, in which the bank loan remains bullet-payable at first and is repaid upon allocation of the home savings contract. For homeowners in Nuremberg who financed their properties at historically low interest rates between 2010 and 2015 and now need follow-up financing at significantly higher rates, this strategy is particularly relevant in hindsight-and instructive for future periods of falling interest rates.

Practical Tip for Nuremberg and the Metropolitan Region

In the Nuremberg metropolitan region, many families use the home savings contract as a supplementary financing component alongside a traditional bank loan. Especially for modernizations and energy-efficient renovations-such as in existing properties in neighborhoods like Ziegelstein, Eibach, or Reichelsdorf-the home savings loan is well-suited as interest-rate-locked financing for smaller projects up to 50,000 euros. In the metropolitan region, Landesbausparkasse Bayern (LBS Bayern), Schwäbisch Hall, and Wüstenrot have a strong presence.

We recommend taking out a home savings contract early on, even if your specific real estate plans are still in the future. The savings phase, which lasts seven to ten years, allows you to build up equity and lock in the current loan interest rate for the future. Have different rate offers compared independently, as the terms of the building societies vary significantly-especially regarding closing fees (usually 1% of the savings amount) and loan interest rates.

Frequently Asked Questions

For what purposes can a building savings loan be used?

The building savings loan is earmarked for residential use. This includes the purchase or construction of a property, modernizations and renovations, energy-efficient retrofits (e.g., thermal insulation, new windows, heating system upgrades), the acquisition of building land, the repayment of existing real estate loans, and the acquisition of residential rights (such as in condominium complexes). Use for non-residential purposes-such as consumer goods or vacations-is prohibited and may result in the loss of government subsidies as well as the reclamation of premiums already granted. The designated use is documented by providing evidence to the building society.

Is a building savings contract worth it when interest rates are low?

When market interest rates are low, the interest on the savings balance during the savings phase is hardly attractive. However, the real value of the building savings contract lies in the interest rate lock-in for the future loan. Anyone who takes out a building savings contract today and plans to finance a purchase in five to ten years secures the loan interest rate agreed upon today-regardless of how market interest rates develop in the meantime. In this way, the building savings contract acts as a kind of insurance against rising interest rates. In addition, government subsidies such as the housing construction bonus and the employee savings allowance make building savings attractive for those eligible for subsidies, even during periods of low interest rates.

Can I terminate the home savings contract early?

Yes, a home savings contract can be terminated at any time. In this case, you will receive your accumulated savings, including the interest credited, back. However, government subsidies such as the housing construction bonus are forfeited if the statutory lock-in period of seven years has not yet expired-the bonuses must then be repaid. In addition, some building societies charge an early termination fee. Termination should therefore be carefully considered-sometimes it makes more sense to reduce the contract to small contributions and place it on hold rather than canceling it entirely.

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