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A forward mortgage is based on a fixed-rate mortgage, in which clients lock in the current mortgage interest rates months in advance. This can be a new fixed-rate mortgage or the extension of an existing mortgage. It depends on the mortgage provider how far in advance this forward transaction can be planned.

The main reason for taking out a forward mortgage is the assumption that interest rates may rise in the coming months. By securing interest rates at today’s level, clients avoid this risk.

Other reasons in favor of the forward mortgage are your individual circumstances and your personal attitude towards financing. If you cannot afford to take a risk or prefer not to, even if it only seems to be a small one, you are on the safe side with this mortgage. Also, if you’re one of those people who like to check off open to-dos you can complete this task early.

To secure a fixed interest rate, mortgage holders usually have to pay a premium to the bank – the so-called forward premium. The amount of this depends primarily on how far the mortgage date is in the future – the further in the future, the higher the premium. Many banks charge the premium together with the mortgage interest rate, which then turns out to be slightly higher than a mortgage without a premium.

For a relatively short period, mortgage providers allow you to lock in an interest rate for free.

Once you have taken out the mortgage, a distinction is no longer made between the forward premium and the interest rate – instead, it is referred to as the individual mortgage interest rate. This can be deducted from your taxes in the usual way.

It can make sense to take out a forward mortgage if there is a strong likelihood that interest rates will rise in the future. With this type of mortgage, you benefit from the currently low interest rates and avoid paying higher interest rates that may apply if you take out the mortgage later. Given the volatility of financial and capital markets, an increase in interest rates is not uncommon. A forward premium, which usually amounts to only a few basis points, is therefore quite justifiable if you want to err on the side of caution.

By contrast, if interest rates remain the same or even fall, a forward mortgage is not advisable as you would have to pay the agreed premium on your fixed-rate mortgage – completely unnecessarily – every month throughout the entire term. However, a reliable interest rate forecast is hardly possible because there are too many variables and unforeseeable events that also play a role. If you pursue a long-term, future-oriented financial strategy, you can take out a mortgage with a forward clause regardless of how interest rates develop.

Taking out a forward mortgage is an option for you if you want to minimize your financial risk. You avoid the risk of rising interest rates up to the start of and during the mortgage term. However, you have to factor in the cost of this security, the forward premium. It’s only possible to assess afterward whether taking out a forward mortgage was ultimately worthwhile.