In the course of a real estate financing, there are one or even several commitment periods for the interest rate. Each financing period ends with a financing section. As long as there is still a residual debt, a follow-on financing must be organized. This can be completed at the same financial institution or at any other.
When choosing follow-up financing, a lot of money can be saved when comparing offers. In many cases, the change of the financial institution is worthwhile, if the previous provider does not want to deviate from its offered conditions.
- As with the first loan can be saved with the choice of the right follow-up financing a lot of money – Compare worthwhile!
- When planning follow-up financing, different deadlines should be taken into account, in particular the fixed interest period.
- In addition, the required loan amount, the new fixed interest period, the possible monthly installment and the repayment rate must be known again for the planning.
- Depending on the expected interest rate, a choice should be made between follow-up loan and forward loan.
Interest and conditions in comparison
An overview of current conditions for follow-up financing in the form of a forward loan can be found in our following calculator:
Important deadlines for follow-up financing
What deadlines borrowers should consider when planning their follow-up financing is shown in our subsequent infographic:
Five steps to optimal follow-up financing
An optimal follow-up financing is not only the best interest rate set. We will show you how to get the optimal follow-up financing in five steps:
1. Check when you can get out of the existing loan agreement
The most important thing is to clarify first: When can you get out of the current loan agreement? Here’s a look at the end of the fixed-interest period. By that date at the latest, the follow-on financing must be in the vanguard – either in the form of a new loan from the previous bank or in the form of a rescheduling through a forward loan with another bank, with which the previous loan will be replaced.
In our advisory guide, we outline the deadlines for rescheduling mortgages. The standard deadline is six months at the end of the agreed fixed interest period. In addition, with a fixed interest rate of more than ten years, any term of six months may be terminated at any time after the full disbursement of the loan is more than ten years old.
In addition, a faulty cancellation policy can mean that you, as a borrower, can withdraw the loan within 14 days without giving any reason even after taking out your loan. This topic has also been discussed in detail in a guide to the cancellation of mortgages.
2. Define basic data
Before you can get the offers from the previous bank and other banks and intermediaries, you should know the key figures of follow-up financing. This includes
- the required loan amount,
- the new duration of fixed interest,
- the maximum monthly rate,
- and based on that, the new amortization rate.
As a rule, the required loan amount corresponds to the residual debt of the loan to be replaced at the time of the rescheduling. Of course, it is also possible to repay part of the remaining debt immediately and start with a lower loan amount into the follow-up financing.
Basic rule: Special repayments are always worthwhile if the return after tax on the investment of the money is lower than the effective interest rate of the new loan.
3. Plan follow-up financing early
Who knows when he will be able to get out of his current loan agreement and what residual credit he has to repost, should inform himself a few years before this date about the development of interest rates. The goal should be to have the best possible time to secure the lowest possible interest rates for follow-up financing.
Latest date for soliciting offers should be six months before a possible exit. In doing so, you should seek both an offer from your previous bank and offers from intermediaries and other banks.
For follow-up financing, banks offer so-called forward loans, which can be used to secure all relevant key data such as interest rates, fixed interest rates and the repayment installment up to five years in advance.
For you as a borrower, such a forward loan provides planning security and thus quiet nights. Because you already know at the time of graduation, at which conditions they replace your existing loan and with what remaining time and monthly burden you have to expect after the follow-up financing.
Important: the price for this security is the interest rate. As a rule, banks charge an interest charge on forward loans, which increases the longer the lead time. With a lead time of up to two years, however, it should be possible to conclude a forward loan even without an interest premium. Therefore, pay attention to the interest premium when comparing different offers!
Forward loan or follow-up loan?
Whether a follow-up forward loan or a follow-on loan taken out at the time of follow-up financing is more favorable for your follow-up financing depends on the expected interest rate level. If interest rates rise, the follow-up loan becomes more expensive. If they sink, you pay on the forward loan.
An example illustrates this: As a borrower you have to repay a residual debt of 100,000 USD in two years. You can either now take out a forward loan at 2.00 percent bound borrowing rate per annum, 4.00 percent initial repayment and 10-year fixed interest rate, or use a follow-up loan shortly before rescheduling. The interest on the forward loan is now fixed. By contrast, the interest on a follow-on loan to be subsequently settled depends on the development of interest rates. From when the follow-up loan would be cheaper, our graph shows:
When, depending on the expected level of interest rates, a forward loan that has now been concluded or a later loan to be concluded is more favorable.
4. Higher eradication = faster debt free
Anyone who reschedules these days usually pays significantly lower interest rates for the follow-up loan than for the original loan. Clever is not to enjoy a lower monthly rate, but to keep the rate at the same level and to increase the eradication.
Basic rule: the higher the repayment, the faster you get rid of the loan!
If your income situation has improved since taking out the existing loan, there is nothing against a higher monthly installment. As a result, you are faster debt free.
Important: the monthly burden of repatriating the loan should never exceed 40 percent of your disposable income. The household calculator helps you to calculate your monthly income.
5. Record full-mortgage loan
If you can easily repay the loan in 10 to 20 years, it is worthwhile to take a Volltilgerdarlehen. This is then completely returned during the interest rate commitment. Benefits for you: you do not have to worry about follow-up financing again and you have interest rate security for the entire repayment period.
Compare and negotiate
If you have taken our five steps into account, you can now seek suitable offers from your current bank as well as intermediaries and other banks. With our mortgage calculator, you can get an initial overview of the conditions on the market:
Compare mortgage lending
Our mortgage calculator helps you to find the best mortgage lending:
Net loan amount: Running time: 5 years ten years 15 years 20 years Mortgage lending: 60% 80% repayment: 1 % 2% 3% 4% 5% 6% 7% 8th % 9% 10% full
With the offers of the other banks, you can then make representations to their previous bank so that they can improve their own offer. For you, this has the advantage of not having to change the bank.
How does a follow-up financing work?
The follow-up financing continues the process of debt relief on newly determined terms. Since the previous loan agreement has been terminated, there is no longer a legal obligation to extend the contract on this closing date. There is only a relationship between the creditor and the debtor.
Many builders are unaware that at this time still the possibility (but not the obligation!) For follow-up financing at this bank. The outstanding debt can now be financed either by a follow-up contract with the same or another bank or savings bank.
The whereabouts of the former bank will be continued with a new mortgage contract, which will include new terms for interest rate, repayment installment and interest rate fixing. When changing the bank, the previous creditor wants to have the remaining debt back immediately.
Follow-up financing with the same provider has advantages and disadvantages
The advantage of staying with the same bank is the saving of additional costs. In the land register no new entry is due and a new valuation of the property does not take place. The Institute already has all the necessary information.
A new credit check is also eliminated, since the old credit check for a larger debt has already been sufficient and now only a small residual debt in the room.
The security of the remaining debt is already entered in the land register and significantly higher than the new secured loan.
In many real estate financing, the lending rate of the property plays a role. If the mortgage lending rate is less than 60% of the real estate value, this strengthens the negotiating position with the creditor bank.
One disadvantage is that the current lender also calculates these costs and the associated inconvenience. He will rely on the convenience of his client and set the rate of follow-up financing slightly above the usual market rate (see our comparison of interest rates for mortgage lending). Thus, the customer does not receive the best available interest on the market, but saves the costs and the processing of a completely new real estate and credit rating along with land register changes and notary contract.
It is imperative to check offers from other banks for follow-up financing
When the final date of interest rate fixing approaches, it makes sense to review the current market conditions for mortgage rates. The current bank will make an offer for follow-up financing if the previous business relationship has been smooth.
In order to evaluate this offer, detailed information about the market situation is essential. With additional offers from the competitors can usually be negotiated on the modalities of follow-up financing with the own banking institution.
As an owner, you have to calculate the total cost of follow-up financing from different providers in order to compare them. The incidental costs for the change of the banking institute must not be forgotten. With the financing costs and the additional costs, the calculation of follow-up financing can be compared with various providers.
Time horizon of follow-up financing
It is essential to keep in mind that there is sufficient time ahead. A follow-up financing should be started organizationally at the latest 3 months before the end of the fixed interest period. Smart builders are already observing the market two to five years earlier and are also considering a forward loan if interest rate forecasts make this look attractive.
All contract documents should be sealed in time and notarized and all necessary entries must be requested in time and executed. The banks then seamlessly separate each other. The debtor does not get the money in the hand. The notary oversees all operations.
What savings are possible when switching providers?
Many builders are dazzled by the offer of their own bank by optically lower monthly rate. Since the follow-up financing reaches a smaller sum, the monthly annuity is below the previous one. At least that’s the case when the interest rate has not risen sharply.
A calculation example makes it clear how enormous the savings can be with the right choice of follow-up financing:
A follow-up financing is assumed, which still has to cover a residual debt of 100,000 USD. For the repayment of the loan, a repayment of 1% is assumed. The offer of the hitherto financing bank amounts to 4.20% with renewed 10-year fixed interest rate.
Slight deviations from the above amounts may arise due to different settlement modes of the monthly repayments, but for an evaluation, they do not play a role.
The two residual debts are comparable, but in the interest payments incurred results in a difference of 3,070 USD.
The cheaper financing thus saves 1070 USD in 10 years. For this sum, the new entry of a mortgage in the land register with a new loan agreement with the notary in any case worthwhile. Also, the annoying running for real estate valuation and the new credit check can be gladly accepted.
Request a free and non-binding offer for a forward loan
If you would like to be supported by experts in planning your follow-up financing, we offer you the following opportunity to work out a free and non-binding offer: