The decision to build or buy property is one of the most important in life – and one of the most expensive. Future homeowners are therefore not only recommended to rely on care and expert advice when choosing home finance, but also to make provisions for emergencies. For this purpose, some providers offer a so-called retirement loan, i.e. a combination of building finance and insurance. But is this combination product really worth it?
What is a retirement loan?
The core of the pension loan is construction finance, which can be adapted very flexibly to the wishes of the interested party. When the interest rate is fixed on the loan, for example, terms of up to 30 years are possible. Interested parties can also choose between two options for the repayment options. On the one hand, a repayment rate of 1 to 10 percent with the option of a special repayment of up to 5 percent per year can be selected. On the other hand, a repayment rate of 1 to 5 percent with a special repayment of 10 percent per year is possible. The following applies to both variants: During the fixed interest period, the repayment rate can be adjusted five times in the selected repayment area without an additional fee.
So far, the pension loan is not a special feature, since the conditions just described can also be negotiated for mortgage loans from other providers. What is special about the retirement loan are two other components that are intended to secure the borrower and his mortgage financing in an emergency.
There would be integrated unemployment insurance : in the event of operational – i.e. not self-inflicted – unemployment, the interest payment on the building loan and 1 percent of the repayment will be borne by the provider. Important: The provider only takes over this service for 12 months. If the borrower is still without a job after one year, he still has to pay interest and repayments independently.
- The second integrated benefit in the pension loan is death protection. If a borrower dies, the provider again pays the interest plus 1 percent of the repayment. This service is not limited in time, but limited to a sum of up to 30,000 USD.
Advantages and disadvantages of a pension loan
The retirement loan advertises with its flexibility. In fact, it offers a fixed interest rate of up to 30 years on request, but is no exception with this option. Many other providers of mortgage lending also offer this option. The Wolfdietrich experts point out a rule of thumb here: the longer the fixed interest period, the higher the interest rate – i.e. the cost of the loan. This will apply to the retirement loan as well as to any other construction loan.
The flexibility of the repayment options must be assessed in the same way. The possibility of changing the repayment in the course of the fixed interest period can prove to be useful if, for example, the borrower’s professional situation changes and the repayment is to be adjusted to the new salary. The option of special repayment can also be useful if, for example, an unforeseen capital ends up in the household budget due to an inheritance. However, it should also be emphasized here that these options are not unique features of the pension loan, but can also be integrated into construction financing from other providers – in some cases even cheaper.
The Wolfdietrich experts advise all future property owners to think about securing building finance, for example through occupational disability or residual debt insurance. With regard to the retirement loan, however, it should be borne in mind that it is a combination product. Combination products can be noticeably more expensive than pure home finance. And even if cautious builders accept the possible additional costs in favor of the insurance benefits offered in the pension loan – the components of a pension loan may be cheaper to get from other providers individually. Those interested in loans should check this in any case.
Conclusion: is a retirement loan worthwhile?
In any case, it is advisable to think about additional insurance when concluding a building loan to cover the borrower in the event of unemployment or disability, for example. In the case of offers such as the precautionary loan, however, it should be checked whether not only the mortgage, but also the insurance can be obtained more cheaply from other providers. In general, interested parties should always check beforehand with all combination products whether inexpensive individual parts from different suppliers can be combined to create a cheaper overall package.