Wohn-Riester can be used to build or buy a house, condominium or registered cooperative apartment – but not to purchase a holiday home.
The aim of expanding state funding to finance self-used real estate is to enable people to live rent-free during their retirement phase and thus have lower living costs. However, under very specific circumstances and with prior approval, it may be possible to rent out the property for a limited period of time during your working life. But at the latest in the retirement phase, the saver has to move in there himself.
It can be used in two different ways:
- Withdrawal from Geld-Riester
- Financing with Wohn-Riester
1. Withdrawal from Geld-Riester
This means that a few years ago you concluded a contract with the aim of receiving a lifelong supplementary pension. Now you can consider using the capital created there to pay off debt. The following applies: The capital from the money Riester contract can be withdrawn either completely or only partially. In the case of a partial amount, the double restriction applies that you must withdraw at least 3,000 euros, but also at least 3,000 euros must remain in the money Riester contract.
Example A
The capital in the money Riester contract is 10,000 euros. Both complete and partial removal is possible here. For a partial withdrawal, you can choose any amount between 3,000 and 7,000 euros.
Example B
The capital in the money Riester contract is 5000 euros. Only complete removal comes into consideration here. Partial withdrawal is not possible. Reason: If you want to withdraw 3,000 euros, only 2,000 euros would remain in the contract – that is not enough. If you want to leave 3,000 euros in the contract, you could only take 2,000 euros – that is also not enough.
If you don't want the financing to begin until later, you can even conclude a cash Riester contract today, secure the annual allowances in this way and use the capital you have formed in the financing at a later date, for example through special repayments.
Under certain conditions it is also possible to use capital for renovations. At least 6,000 euros must be withdrawn in the first three years after purchase or construction. After the first three years, the minimum amount is 20,000 euros. According to Section 92a of the Income Tax Act (EStG), at least half of this must meet the requirements of DIN 18040 Part 2 from September 2011 and the remaining part must serve to reduce barriers in or on the property.
2. Financing with Wohn-Riester
You can also choose between different options:
- an annuity loan
- a building savings combination financing
- a building savings contract
Annuity loan
You buy or build your property today and pay an installment consisting of interest and repayment. The interest rate is fixed for a certain period of time – the so-called fixed interest rate. This could be, for example, 10 or 15 years. The closer the end of the fixed interest period comes, the higher the repayment portion is. The reason is that the interest is calculated on an ever-decreasing loan amount.
Example
You have taken out an annuity loan of 200,000 euros with an interest rate of 3 percent and an initial repayment of 3 percent. This means the monthly rate is exactly 1000 euros. With the first installment, 500 euros interest is paid and 500 euros are repaid. This reduces the remaining debt to 199,500 euros. With the second installment you pay around 499 euros in interest and repay almost 501 euros. After ten years, the remaining debt is just over 130,000 euros. In this phase, with an installment of 1000 euros, you only pay around 325 euros in interest and repay almost 675 euros.
Building society combination financing
With this model, too, you buy or build your property today. However, the financing is different than with an annuity loan. Because today you take out a so-called advance loan. Only interest is paid on this loan; it will not be repaid. Instead, you save up for a building savings contract alongside the advance loan. This will later, when it is ready for allocation, completely replace the advance loan. Only then do you pay an installment consisting of interest and repayment to repay the building society loan.
Pure building savings contract
In doing so, you save up your own capital so that you can fulfill your dream of owning your own four walls at a later date. If the building savings contract is ready for allocation, you can not only use the savings you have saved to purchase the property, but also take advantage of a low-interest building savings loan.
