How does it work?

Bausparen is considered a contractual savings scheme and, in few words, links a savings phase to the right to receive a mortgage loan. Although Bauspar savers receive less interest on their deposits than do others, they are charged less for their loans in exchange. Further, interest rates are fixed for the whole contract term. This is what makes Bauspar loans very attractive.

A Bauspar contract concretely may be divided into 4 phases:

First, the contract itself is determined. With the Bauspar contract the lender and the borrower agree on the contract sum, the savings rate, the rate of repayment and the interest rates for the savings and the loan period.
During the following savings period, savers normally save about 40% to 50% of the total contract sum. The savings phase generally takes savers about 5 to 6 years.
Having concluded the savings phase, borrowers may take up their loan which consists in the difference between the saved capital and the contract sum. As the Bauspar system is based on a self-sustaining fund (that consists of deposits and repayments), sometimes, customers have to put up with a short waiting period until they may get their loan. Specific queuing rules determine the sequence of the loan disbursements to the customers.
After having received their loans, customers start with repayment. The interest rate of the loan usually is about 2% higher than the one for savings. Bauspar customers may repay more than their contract foresees and whenever they prefer to do that. They are not charged any prepayment penalty.