Home savings contract

Building Savings Contract - A building savings contract is a special-purpose savings agreement with a building savings bank that, following a savings phase, entitles the holder to a low-interest building savings loan for residential purposes.

How does a home savings contract work?

A home savings contract is divided into three clearly distinct phases. During the savings phase, savers make regular contributions to their home savings account until a certain percentage of the agreed savings amount is reached-usually between 40 and 50 percent. The interest rate on the balance is relatively low during this phase but is contractually fixed. The closing fee is usually 1 percent of the total savings amount and is due at the start of the contract.

Once the required minimum balance has been saved and a sufficient valuation figure has been reached, the allocation takes place. From this point on, the saver can access their accumulated savings along with the building savings loan. The loan amount is calculated as the difference between the total savings amount and the accumulated balance. Allocation is based on the collective principle-all savers at a building savings bank form a community whose combined contributions are used to grant loans.

During the subsequent loan phase, the saver repays the low-interest loan in monthly installments. The major advantage: The loan interest rate is fixed at the time the contract is signed, regardless of how interest rates on the capital market develop in subsequent years. This offers valuable planning security, especially in times of rising interest rates. The repayment period ranges from seven to twelve years, depending on the plan and loan amount.

The best-known building societies in Germany are the LBS (Landesbausparkassen), Schwäbisch Hall, Wüstenrot, and the Deutsche Bausparkasse Badenia. Each offers different plans that vary in terms of savings contributions, loan interest rates, and eligibility requirements. It’s worth comparing plans-especially since differences in loan interest rates can amount to several percentage points.

Government Subsidies and Interest Rate Protection

Home savers benefit from several government subsidy programs. The housing subsidy amounts to up to 70 euros annually for single individuals and 140 euros for married couples, provided that taxable income does not exceed 35,000 euros (70,000 euros for married couples). The subsidy is credited to the account balance and paid out when the loan is drawn down. In addition, employees can contribute capital-forming benefits (VL) to a home savings contract and receive an employee savings allowance of 9 percent (up to a maximum of 470 euros) in return.

Particularly attractive is the combination with the Riester subsidy in the so-called Wohn-Riester model. Here, government subsidies (basic subsidy of 175 euros/year, child subsidy of 185 or 300 euros per child) and, where applicable, tax benefits flow directly into the home savings contract. However, deferred taxation in retirement (Wohnförderkonto) should be factored in, as the subsidized amounts must be taxed in old age.

The key benefit of a home savings contract lies in interest rate protection: Those who lock in a low loan interest rate today protect themselves against rising market interest rates in the event of subsequent refinancing or a future real estate purchase. For homeowners who will need to extend a fixed-rate period in a few years, a home savings contract taken out in a timely manner is a proven hedging tool.

Building Savings Contracts in Tax Planning

For rental properties, the interest on the building savings loan can be deducted as income-related expenses for tax purposes, provided the loan is used to finance or renovate the rental property. This also makes the home savings contract attractive to investors who wish to finance energy-efficiency renovations with a low-interest, tax-optimized loan. We recommend consulting with a tax advisor in advance regarding tax treatment, as the designated use must be documented in writing with the home savings bank.

Practical Tip for Nuremberg and Franconia

In the Nuremberg metropolitan region, we continue to observe a dynamic real estate market. A building savings contract entered into early on can be particularly worthwhile for young families who wish to purchase a property in the next five to ten years in neighborhoods such as Erlenstegen, Mögeldorf, or in the surrounding area of Nuremberg. With typical purchase prices ranging from 300,000 to 600,000 euros for condominiums in Nuremberg, a building savings contract with a savings amount of 50,000-80,000 euros provides a meaningful down payment. We recommend basing the savings target realistically on regional purchase prices-as a component of overall financing, not as the sole solution. A personal consultation with an independent local financial advisor helps determine the right plan and the optimal savings rate.

Frequently Asked Questions

Is a home savings contract worth it even without a specific property in mind?

Generally speaking, yes, because a home savings contract locks in today’s interest rates for the future and allows you to take advantage of government subsidies. However, the return during the savings phase is low. Those who do not intend to use the funds for residential purposes should consider whether other investment options might be more suitable. However, government subsidies make home savings attractive even as a pure savings product for low-income earners-especially those eligible for the housing subsidy, who can achieve an effective return of around 10 percent on the subsidized amounts with little risk.

Can a home savings contract be used for follow-up financing?

Yes, this is actually one of the most common uses. Anyone who knows that a fixed-rate period will expire in a few years can secure the current loan interest rate for follow-up financing by taking out a home savings contract in a timely manner. This model operates through a so-called advance loan, in which the existing loan is initially extended with a bullet repayment at maturity and is fully repaid upon allocation of the home savings contract. This is a proven strategy, particularly for ongoing construction financing in the Nuremberg region.

How long does it take for a home savings contract to become eligible for allocation?

Eligibility for allocation depends on the selected plan, the amount of the savings contribution, and the valuation figure. In practice, it usually takes between seven and ten years. Some plans allow for faster allocation through higher contributions, while others are designed for longer terms and lower loan interest rates. Those who wish to speed up the allocation process can make special payments-these increase the balance and improve the valuation score. However, there is no guarantee of the exact allocation date.

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