Explanation of Terms
If there is a loan expiration within the real estate financing (end of the specified credit and interest period), the market value for the existing property must be determined by a sworn expert. This market value then determines the mortgage lending value. It is always difficult to determine the loan and interest term optimally. Because the longer the interest rate is fixed by the borrower, the more expensive the total financing will be. However, this does not mean that one should only strive for short fixed interest periods. Rather, it has to be weighed here. As a rule of thumb, in order to demonstrate the possible procedure: With a fixed interest rate of 5 years and an initial repayment of 1 percent, there is still a remaining debt of 5 percent after the fixed interest period has expired.
Borrowers who choose the wrong follow-up financing after the loan has expired must dig deep into their pockets. A terminal financing serves to extend a construction loan after the rate fixation. For example, if there is still a residual debt for a building loan after a ten-year term, the borrower is forced to provide follow-up financing for this remaining amount. Here are set according to the then current applicable market interest rates for the following period. Those who do not timely notified in advance and only accepts the extension of its offer (domestic) bank often has bad cards. In addition to a comparison, a change in the credit provider is always worthwhile. Another option is to secure follow-up financing with a so-called forward loan.
Anyone who relies on another building loan for their prolongation (follow-up financing) has the simplest, but also the most expensive option in their budget. Because not only is the new interest rate higher, the previous credit conditions such as risk premiums etc. are also being continued in many cases, even though they are no longer valid. In addition, a special repayment option is completely excluded in most old contracts. However, this should never be lacking in follow-up financing. If you want to make your bank willing to negotiate, simply mention the possible conclusion with another provider. No bank will let customers with creditworthiness so easily.
The previous bank only has the right to completely refuse follow-up financing in the event of a lack of creditworthiness. However, the credit institution must notify this in writing three months before it expires. Since it is possible to switch banks at any time after the interest rate has expired, it is also worth taking a look at the Internet banks and their favorable interest rates. Follow-up financiers come up with 0.5 percent savings in some cases. This percentage sounds slight, but if you take an existing remaining debt of 100,000 USD, the savings are at least 5,000 USD. If you deduct the costs for the transfer of around 300 USD from this, there is still a good saving. Anyone who relies on secure follow-up financing should always make sure that not only is the interest rate low, but positions such as the time frame, repayment rate or flexibility also match.
Forward loan security
Who puts on an elaborate financing must not only plan for a moment this. If the building rates have reached a historically low rate, this can be secured for follow-up financing with a so-called forward loan. The borrower is already securing the option of constant low interest rates today, even if the current financing has not yet been completed and may still run for three years. As a result, the mortgage lender is already considering possible changes in the future. It should not be forgotten that most of the financing is designed for 15 to 20 years, only then can you view your property as property.
Many mortgage lenders already consider the currently low interest rates as normal, and will continue to do so in the future. But the yield curve can quickly show up than you think. No mortgage lender should therefore expect the low interest rate level to continue, especially not over a period of over two decades. Fluctuations on the capital market of several percentage points are not uncommon and do not mean anything unusual. Anyone who has granted the contract term incorrectly has an additional expense of USD 170 per month with a loan amount of USD 100,000 and an interest rate increase of around 2 percent. The contractual relationship entered into once also applies here, let alone the possibility of a legal or contractual right of termination.
It is not infrequent that the entire previous interest rate advantages are questioned again. With a forward loan, on the other hand, the borrower secures the chance to benefit from today’s low interest rate even after the fixed interest rate has expired. The interest premium that most banks charge for this is limited. In addition to the interest rate, the repayment and the monthly installment, all other conditions are also set for the forward loan. The spread is then required for the interest guarantee and is calculated from the respective credit period from the old contract. In this context, the higher the interest premium, the longer the waiting period is set.
Most credit institutions charge around 1 percent of surcharge fees for a three-year reservation period; in many cases, only 0.3 percent has to be paid for one year. This means that a forward loan can also be used optimally for debt restructuring. Because here the borrower has the advantage that he does not have to obtain approval from the previous credit institution. If, on the other hand, the borrower were to reschedule debt without a forward loan, he would remain tied to his bank – for at least ten years. After that, any loan can be canceled.