A forward loan is an annuity loan that is agreed upon for the future. It is particularly used in real estate financing, with the costs (provision and interest costs) only accruing after the agreed lead time. The purpose of a Foward loan is to secure the current interest rate for the future.
Due to the currently very low-interest rate level, the interest rate trend is likely to rise again in the longer term. Because of this, it makes sense to get information at an early stage and get advice about risks and possible conditions.
You have to be aware of these risks
In addition to the numerous advantages, there are also potential risks that you should be aware of. It should be mentioned that the security against rising interest rates will have to be bought in the future by a small interest premium. This is quite different, which is why you should obtain individual terms from a consultation in order to secure the best possible offer.
Extensive research and tips from experts are a basic requirement. This minimizes the risk of completing your follow-up financing on bad terms. If you want to save time and money here, you will pay in the long term.
Another risk is that interest rates will continue to fall in the future. In this case, you would still have to use the agreed loan. In the event of non-use, a compensation payment would have to be made to the bank. This is also known as non-acceptance compensation.
Pay attention to interest rate developments
Interest rate developments are generally difficult to predict, which is why a forward loan should rather be understood as a hedge. You can speculate on rising interest rates, but the purpose is more of planning security. They know exactly what amounts they will have to pay for repayment and interest in the future. This helps both owner-occupiers and landlords with the planning.
You no longer has to worry about rising interest rates and can sleep peacefully. There are numerous cases where property owners have been unable to pay their loans due to rising interest rates. Admittedly, this is not the rule, but you should work out beforehand whether you can still service your loan when interest rates rise. You will find numerous computers on the Internet for this purpose. You can also get individual advice from experts.
Good preparation is important
In conclusion, we note that a forward loan offers both risks and opportunities. Thorough preparation minimizes the risks considerably and maximizes your options.
You should carefully examine your individual situation and, if necessary, contact a consultant. Most of them have years of experience and are armed against all eventualities.
Note the development of the interest rate level
If a rate hike presents you with financial problems or at least severely limits your standard of living, such follow-up financing would be advisable.
Furthermore, given the currently very low-interest rate level, a further and continuous rate cut may at least be strongly questioned. Simply check your options and decide which financing suits your life best.