Bausparen is a popular method for financing homeownership in Germany. It combines a savings phase and a loan phase to help realize the dream of owning a home. However, like any financial instrument, Bausparen has both advantages and disadvantages. This article provides an overview.

What is Bausparen?

With Bausparen, you enter into a Bauspar contract with a building society. During the savings phase, you regularly contribute to your Bauspar account until you reach a predetermined amount. Then, you are entitled to a low-interest loan that you can use in the loan phase to finance your homeownership.

Advantages of Bausparen

• Planning Security: The interest rates for savings contributions and loans are fixed from the start, providing financial certainty.

• Government Subsidies: Bauspar savers can benefit from various government subsidies, such as the Housing Premium, Employee Savings Allowance, and Riester Subsidy, depending on personal eligibility.

• Flexibility: You can adjust the Bauspar contract to your financial situation, vary contributions, or even take a break.

• Favorable Loan Rates: The interest rates for Bauspar loans are often lower than those for conventional home financing.

Disadvantages of Bausparen

• Long Lead Time: Before you can access the Bauspar loan, you must complete the savings phase, which can take several years.

• Lower Returns: The interest on the saved capital is often lower than other investment options.

• Fees: Bauspar contracts may involve various fees, such as initiation and account management fees, which can reduce returns.

• Commitment: By entering into a Bauspar contract, you commit long-term to a building society and its terms.

Who is Bausparen Suitable For?

Bausparen is particularly suitable for people who value planning security and can benefit from government subsidies. It is also a good option for those seeking a secure investment for their equity and who want to lock in low-interest rates for future home financing.