Building Savings Explained: Building Savings Contract, Definition, Comparison, Contracts + Costs

The decision to save for a building loan is a long-term and well thought-out consideration. Besides comparing different tariffs and building savings, there are other things to consider. A building saving contract usually aims for a smaller sum and is only intended to supplement the actual real estate financing. You can find out everything you need to know about building savinging now in our big guide to building savinging!

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The three phases of building saving: saving, repayment and loan phase

Each building saving consists of different phases. In most cases there are three different phases that have to be passed through. First a certain amount is saved, then the loan is allocated and finally repaid. But how exactly do these phases work and which key figures have to be determined during the respective phases?

Tip: More about the topic Credit & Financing

The Most Important at a Glance

  • In the saving phase, a certain amount is saved. This amount depends on the volume of the building savings contract
  • If the minimum amount is saved, the loan can be paid out. There are several options that can be taken during the allocation phase
  • In the loan phase, the loan is repaid with monthly payments. The repayment period depends on various factors, such as the loan amount
  • building savings operate with the help of payers and payees who provide cash flow and earn the same from interest
  • Different building savings offer different tariffs for building savers. The comparison of the building saving accounts is worthwhile due to the different offers for each building savinger

The Saving Phase – Save Money Until Allocation

In the saving phase, a certain amount is saved first. This usually corresponds to 30-50% of the volume of the building savings contract. For this purpose, the savings amount, the loan interest rate and the redemption amount must be determined. It is important to know in advance exactly how high the loan amount should be and to consider both the costs for the property and the existing equity capital. Only when this sum is completely saved, the contract is ready for allocation and the loan can be paid out. A building saving contract is also often started at a young age without having planned a concrete building project. Here the sums for the contract vary depending on the individual situation and financial situation.

  • In the saving phase a certain amount is saved
  • This amount depends on the volume of the building saving contract

The allotment phase – different possibilities for building savers

After the minimum valuation number has been saved, the contract is ready for allocation and the loan is paid out. The valuation figure regulates the fair distribution and the order of allocation, since all building savers of a building saving pay into the same pot. Therefore, only a certain amount of the loan can be paid out each month in order to keep the incoming and outgoing payments in balance. The allocation phase is reached after at least 18 months after the conclusion of the building saving contract. Here building savers then have two options. The credit balance and the state premiums can be paid out or the building saving loan can be used for home ownership. In the latter case, the building savingkasse will pay out both the savings and the loan, i.e. the entire building saving sum. Special payments can shorten the allocation phase and help you reach your goals faster.

  • If the minimum amount is saved, the loan can be paid out
  • There are several possibilities that can be perceived in this phase

The Loan Phase – Repayment of the Loan

If building savings loan customers decide to take out the loan and use it for home ownership, the building and loan association will pay out the saved credit balance and the loan, i.e. the entire building saving sum. The loan is then repaid in monthly interest and repayment instalments. The amount of the repayment installment is chosen by the building saving customer. The repayment period depends on the amount of the monthly repayment contribution, the selected loan interest rate and the loan amount and varies according to the building saving tariff.

  • In the loan phase, the loan is repaid with monthly payments
  • The repayment period depends on various factors, such as the loan amount

The Building Saving Contract – Different Variants, Uses and the Benefits

Building saving contracts are one of the most popular and widespread financial products. Mathematically, there will be around 27 million such contracts at the Bundesbank at the beginning of 2019, accounting for three quarters of German households. However, this does not mean that a building saving contract is the best solution for everyone. Moreover, there are very big differences between the rates of different building savings contracts. Exact information and the comparison between different offers helps to make the right decision.

The Most Important Facts at a Glance

  • A building savings contract combines a savings plan with real estate financing and is divided into two phases, the savings phase and the repayment phase
  • The building savings is meant as a long-term, supplementing financing in addition to a real estate financing
  • The topic of building saving savings contains some technical terms that must be understood in order to acquire sufficient expertise. Some of these terms are, building savings collective, regular savings contribution or also building savings sum
  • There are different variants of building savings, which are suitable for different scenarios. For this count the building saving fort financing, the savings contract and the insurance against rising building interest
  • The tariffs of different building savings differ significantly. So it is definitely worthwhile comparing different offers
  • Which building saving contract is the correct one, appendix of different key figures and the individual personal situation must be determined
  • A building saving contract is usually only concluded for a relatively small amount and therefore works only in addition to the actual real estate financing
  • Real estate financing is usually concluded with a bank and not with a building saving
  • The money at building savings is insured by law up to an amount of 100,000 euros. As an additional security, the creditworthiness of the building saving accounts can be checked in advance

What is it and how does it Work? – the Most Important Basics on the Topic of Building Savings

A building savings contract combines a savings plan with real estate financing and is therefore divided into the savings phase and the repayment or loan phase. First, a building savings amount is determined and the percentage of the minimum savings amount. In the first phase, the consumer saves a certain amount of money, which is mostly 30-50% of the volume of the savings agreement. Once this amount has been saved, the contract is ready for allocation and the loan can be called. Thus, savers only receive the loan when the minimum savings amount has been reached. The loan is then paid out together with the money saved up to that point. The loan may be used however only for so-called residential purposes and not for example for the purchase of a car.

If the loan is disbursed, the second phase begins, the loan phase. Once the loan has been paid out, the loan is repaid to the building saving in monthly installments. Explained by an example: An agreed building saving sum is 60,000 euros and the minimum saving amount is 50 percent. The loan in the amount of 30,000 euros is therefore paid out when 30,000 euros have been saved in the savings phase. If the saver puts thus monthly approx. 300 euro back, the allocation maturity can be reached in less than nine years.

  • A building society contract combines a savings plan with real estate financing
  • Building saving is divided into two phases, the saving and the repayment phase
  • The building society savings is meant as a long-term, supplementing financing in addition to a real estate financing

The Most Important Key Figures – Building Saving Collectives, Regular Savings Contribution and Much More

The topic of home loan and savings is very complex and therefore contains many terms that can cause confusion. In order to leave no questions open for you, we explain the most important terms in the topic of building saving savings!

The building saving sum

The building saving sum is the most important key figure in a building saving contract. It indicates the amount of the concluded sum, i.e. both the amount saved and the loan taken out later. When financing a property, the amount of the savings sum can be included.

The valuation figure

The valuation figure defines when the loan can be allocated to you. This number increases as the savings phase progresses. If the valuation figure exceeds the target valuation figure set by the building saving, the loan can be reduced. The higher the valuation number, the more money has been deposited, the lower the amount, and the shorter the term of the loan.

The building saving collective

building saving is based on the collective idea that people willing to save under building saving contracts join together to form a building saving community. This consists of payers, who save credit balances in contracts and of borrowers, who use these credit balances as loans. However the following problem can occur here: If there are too few savers, not all borrowers can access the appropriate credits.

The minimum savings balance

In order to be able to take advantage of the loan, a certain amount of money must be saved in advance. This sum is called the minimum savings balance and is usually between 30 and 50% of the volume of the building savings contract.

The regular savings contribution

In each building saving contract a so-called regular savings contribution is defined, which usually amounts to 4-5% of the savings sum and depends on the amount of the savings sum. The building saving customer thus reaches the minimum savings balance required for allocation after approximately six to seven years. Monthly special payments must be approved by the bank, but are possible in principle.

The terms emerge again and again with the topic building saving saving and must be understood first, before the topic can be concerned intensively. The terms are therefore all very important to acquire an intensive specialized knowledge about the topic.

  • The topic of building saving savings contains some technical terms that must be understood in order to acquire sufficient specialist knowledge
  • Some of these terms are, building savings collective, regular savings contribution or also building society sum

The Variants – Building Loan Continued Financing and Savings Agreement

In addition to the normal building saving contract, there are other variants of building saving contracts. The insurance against rising building interest is worthwhile itself for example, if the later real estate acquisition is firmly planned or however the building interest rises clearly.

With a building loan it can be besides meaningful to know the interest rate up to the last fixed rate. The associated variant is the building saving financing or also called combination loan. Here the building savings contract is combined with another loan. The variant is particularly suitable if the total effective interest rate is lower than a comparable annuity loan or if the borrower wants to finance immediately.

The last variant is the savings agreement, which describes the building saving contract as a pure savings product. Here the contracts lure with an interest bonus, if the customer does without the disbursement of the loan. This variant is worthwhile itself, if high interest is offered, the money is not needed and the savings rates can be kept exactly.

Finding the right contract – the different offers of the building savings

Different building savings sometimes have significantly different rates. A comparison in the search for the best building saving contract is therefore definitely advisable. When comparing different ratios must be considered, as for example the loan interest. But other factors are also important, such as the interest rate on the credit balance and other key points of the contract.

However, the comparison is not easy in any case, since different interest rates are combined with different savings and repayment periods. These key data must then be coordinated with the wishes and individual situation of the savers. Thus it may well be that an offer with a significantly higher loan interest rate is the better choice, since the time to allocation is shorter than with the other variants. Tip: Obtain different offers from different providers for a building saving sum and compare them with regard to the mentioned key figures. All important key figures at a glance:

  • The loan interest rate
  • Interest on the credit balance
  • The savings and repayment period
  • The individual wishes of the investor
  • The costs of the building society for a contract
  • The flexibility (special payments, extensions, …)
  • Periods of notice
  • The amount of the sum
  • The percentage of the minimum savings

You should consider all these key figures when choosing the right contractual partner and compare the different tariffs intensively to find the one that fits your individual ideas and wishes.

  • The tariffs of different building societies differ significantly
  • Comparing different offers is therefore definitely worthwhile!

Building savings and real estate financing – a bank loan as additional financing

The sums of the building savings usually do not exceed the amount of 50,000 euros. However, this amount is not sufficient for the ultimate financing of a property. If the decision to buy or build a property is made, the further financing must be considered. This is possible with a bank as well as with building savings. However, a loan from a bank is often easier and more advantageous than the complicated models offered by building savings. Especially for larger loan amounts, banks are often the better contact partners. With banks, a short term financing is possible and the building saving contract can be used additionally.

Find out more about financing real estate with banks: Tips on Construction Financing!

The security – how safe your money is with the banks

In general, deposits at building savings are similarly secure as savings accounts at banks for overnight and fixed-term deposits. The credit balance is legally secured up to a value of 100,000 Euro. As an additional protection, we recommend checking the creditworthiness of building savings, using the ratings of the major agencies Moody’s, Fitch and Standard & Poor’s. These agencies issue ratings for banks and building savings and evaluate the creditworthiness of these. For overnight and term deposit accounts, only banks with a rating of at least “BBB” (Standard & Poor’s and Fitch) or “Baa” (Moody’s) should be considered. For building and loan associations, a rating of one of these agencies is sufficient, as the ratings of building and loan associations are less common than those of banks. In addition, building saving accounts always have the option of passing on impending risks to the collective. If your bank or building saving meets the criteria, you can be sure that your money is safe.

  • The money at building savings is insured by law up to an amount of 100,000 Euro
  • As an additional security, the creditworthiness of building savings can be checked in advance

The Deal: Facts About Building Savings and the Contract

In addition to the three phases of building saving, other key figures are also important! These include the general understanding of the function of a building saving or important key figures of the building saving contract.

The building saving accounts – the principle, the individual parts and the most important facts

Building savings have specialized in the allocation of building saving contracts. There are different parts that work together and thus make the principle of building savings work. The three phases play an important role here. building saving accounts always have depositors and payers. The payers, who during the savings phase pay in so-called savings installments and the payers, who during the loan phase repay the building saving loan.

The payers are those in the allotment phase, who both receive their saved assets and can draw the loan. The money in a building savingkasse therefore flows back and forth from the payers to the payers. The building savingkasse itself earns its money with interest, which the building saving customers pay in different phases.

The building savings contract – Various offers from building savings collectives

Different building savings sometimes have significantly different rates. A comparison in the search for the best building saving contract is therefore definitely advisable. When comparing different ratios must be considered, as for example the loan interest. But other factors are also important, such as the interest rate on the credit balance and other key points of the contract.

However, the comparison is not easy in any case, since different interest rates are combined with different savings and repayment periods. These key data must then be coordinated with the wishes and individual situation of the savers. Thus it may well be that an offer with a significantly higher loan interest rate is the better choice, since the time to allocation is shorter than with the other variants. Tip: Obtain different offers from different providers for a building saving sum and compare them with regard to the mentioned key figures.

  • Different building savings collectives offer different tariffs for building savers
  • The comparison of the building savings collectives is worthwhile due to the different offers for each building savings collective

The Conclusion – Funding Opportunities, Costs and Advantages and Disadvantages

However, building saving savings offers more than the building saving contract and the general conditions. For example, building saving contracts are intensively promoted by the state. In addition, costs are incurred when concluding a building saving contract, which vary from bank to bank. Before a contract is concluded, other key figures must therefore be observed and checked. In addition, we will give you an overview of the advantages and disadvantages of a building saving contract.

All important information at a glance

  • The state supports building savings through various subsidies. Depending on the situation, the subsidy options can help to access the loan earlier or to pay it off faster
  • In addition to the interest on the loan, other costs are incurred with the building savings contract, such as the acquisition and account management fee, which vary from bank to bank
  • Building savings is not suitable for everyone and therefore offers many advantages and disadvantages
  • On the one hand, building savings offers a great deal of security and can be planned, but is not suitable for short-term real estate financing, for example

The subsidy possibilities – saving is subsidized by the state

There are various subsidies for building saving savers from which they can benefit. These depend on the saver’s income and whether or not the employer participates in the savings agreement for capital-forming benefits. The subsidies come from the state and can help to get the loan paid out more quickly or to repay it more quickly. We have summarized the most important subsidy possibilities and explained them for you:

The capital-forming benefits

Capital-forming benefits can be applied for by employees, civil servants, judges, trainees and by soldiers by the boss. These amount to a maximum of 40 euros per month. The payment is a voluntary decision by the employer and therefore does not have to be approved. However, if they are offered, they are directly recorded in the contract.

The employee savings bonus

If capital-forming benefits are used for the building savings contract and the saver’s taxed income is a maximum of 17,900 Euros or 35,800 Euros for married people, an annual allowance of 43 Euros or 86 Euros can be claimed from the state via the income tax return. However, this employee savings bonus is only paid if the building saving loan is used for residential purposes.

The housing construction bonus

This premium will only be paid out if the building saving contract is used for residential purposes and the taxable income does not exceed 25,600 Euros or 51,200 Euros for married couples. As a further condition, at least 50 euros must flow into the contract annually. The amount of this premium is 8.8 percent of the annual payments and has a maximum value of 45 euros or 90 euros for married persons.

The residential subsidy

In order to receive the residential subsidy from the state, the savings sum may only be used for the construction or purchase of owner-occupied property or for conversions suitable for the elderly. In addition, the saver must have statutory pension insurance. The amount is 175 euros per year, if the saver pays at least four percent of the previous year’s gross income into the savings agreement. For each child entitled to child benefit, an additional amount of up to 300 euros flows into the contract.

The allowances flow both in the savings and loan phase and ensure that the building saving contract is ready for allocation earlier or can be paid off more quickly. Before using one of the mentioned subsidy possibilities, however, the tax aspects should be considered and discussed with an expert.

  • The building savings is supported by the state through various subsidies
  • Depending on the situation, the funding opportunities can help to access the loan earlier or pay it off faster

The costs – closing and account management fees vary from bank to bank

For a building loan agreement, there are other costs in addition to the loan interest, such as the closing and account management fee. The closing fees are a percentage of the amount of the savings amount, while the account management fee varies from bank to bank. Since the costs vary from bank to bank, they should be compared in advance and taken into account in the decision. The costs are therefore another important factor that must be considered when comparing different rates. Tip: According to the German Federal Supreme Court, account management fees are only permissible in the savings phase, as the additional costs for customers in the loan phase in 2017 were declared inadmissible. Please bear this in mind when choosing a building saving.

  • In addition to the interest on the loan, there are other costs associated with the building savings contract
  • The costs include the closing and account management fee, which varies from bank to bank

For whom is it worthwhile? – Decision-making aid building saving contract

A building saving contract is not the right choice for everyone. Especially for people who are looking for short-term real estate financing, the building saving contract is not suitable because the money is only available after the end of the savings phase. For whom a building saving contract is worthwhile itself and which advantages this offers you experience now:

  • The building savings can be planned and determines when money is available for the financing of construction, purchase, conversion or modernization measures
  • The building savings is suitable for people who are looking for security in the long run
  • It is possible to secure low interest rates on the loan for a long time and until the end of the repayment period
  • A building savings contract is supported with many different state subsidies
  • Building savings remain flexible for savers despite the ability to plan
  • Special payments are possible at any time
  • The saver has limited freedom as to when the building saving sum can be used
  • The financial means are available to the saver when he needs them
  • The loan interest rates for building society contracts are usually very low

For whom a building saving contract is not worthwhile and which disadvantages such a binding can have:

  • The building savings contracts are usually only for small amounts, so that the bausparkassen can secure the favorable interest
  • The building society is not suitable for a short term real estate financing
  • The repayment rates demanded by the building societies are comparatively high
  • A building savings contract is not suitable for the financing of an entire real estate, but only as additional financing sum
  • Fees at the time of contract conclusion are relatively high for building societies
  • There is no absolute planning security, since the time of payment depends on the savings portion

Depending on the situation, the advantages and disadvantages make a building saving contract very attractive for the saver, while in other situations saving with a building saving does not offer a sensible alternative. Which choice is the best for you has to be determined according to the individual situation and cannot be answered in a generalized way.

All Questions About Building Saving

The topic of building saving savings is very complex. Therefore it is important to have some expertise and to be well informed before signing such a long-term contract. The experts from Lukinski will answer the most important questions about saving for building purposes, so that no ambiguities remain for you.

What is meant by a building saving contract?

A building savings contract is a savings contract between the investor and the building saving. The building saving contract is a form of investment where a fixed part of the sum is saved before the loan amount is paid out. The building saving saving is therefore divided into two phases. The first is the saving phase, in which the minimum savings balance is saved. In the second phase, the Darlehenspahse, the loan sum is disbursed and gradually repaid by the investor.

How long does one pay into a building savings contract ?

A term is agreed upon in the building saving contract, which is however usually adjustable at any time. Often a minimum term of 18 months is agreed upon and the term is limited to a maximum of 20 years. How long it is finally deposited depends on the sum and the redemption amount.

What does a building saving contract cost me?

The cost of the building savings contract varies from bank to bank. In addition to the costs for the interest on the loan, there are also costs for the closing and account management fee. These costs are an important key figure to compare different tariffs.

Can you transfer a building saving contract?

Yes, a building savings contract can be transferred to a relative. In most cases, the previous conditions are simply retained and thus the rights and obligations are simply transferred to the relative. However, whether a transfer is possible in your contract must be agreed with the building saving in advance.

How can I have my building saving contract paid out?

A building savings contract can theoretically be paid out at any time. However, the payout depends on the respective phase in which the investor is in. In the loan phase, the amount is automatically paid out as soon as the minimum savings balance is reached. During the savings phase, however, the contract must first be terminated in order to receive the assets saved up to that point.

What is the regular savings contribution?

The regular savings contribution describes the monthly amount to be paid and is based on the amount of the building saving sum. The contribution is specified in the savings agreement, but can be changed at any time depending on the contract.

What is the taxable income?

Taxable income is a term from tax law. It describes the assessment basis for the determination of income tax. It is calculated using a rather complicated formula and is therefore not easy to determine for laymen.