With real estate financing, builders and buyers agree fixed interest rates with the lending bank for, for example, five, ten or 15 years. A financing phase ends after the respective time. If there is still a residual debt, borrowers have to take care of follow-up financing.
There are two ways to do this: First, the bank that has previously financed your property will submit an extension offer. On the other hand, you can also check the credit offers of other banks and conclude new financing.
It’s worth comparing
Because, although the conditions of the previous lender often seem very lucrative at first glance, borrowers should not act too quickly and respond to this supposedly cheap offer.
Because you not only give away cash, but also the opportunity to pay off your house or apartment faster – with the same monthly charge. Because the lower the loan interest rate, the more customers can repay the same total charge. Here you will find a daily overview of the available building finance:
Follow-up financing is nothing more than new construction financing. This applies both if you stay with your previous lender and if you change lenders. Incidentally, the latter often reveals better conditions.
The reason for this is that lenders who have been looking after a credit customer for years speculate that he will preferably stay with the previous bank and may not even look around. But you should. In our real estate financing comparison, you can see the current offers on the market.
If the date for follow-up financing is still quite far in the future and you would like to secure the current interest rate level, we recommend taking a look at the current offers for so-called forward loans.
If a larger amount is available to the borrower when the existing real estate financing expires, this time should be used to make a special repayment without a prepayment decision.
This reduces the remaining debt, which also reduces the interest burden on follow-up financing. The remaining amount can be repaid faster with higher monthly amounts. Most banks offer their existing customers an extension offer at the existing conditions and current market interest rates.
However, that is not enough. On the one hand, the amount of work that the extension of an existing loan relationship causes is significantly less than when concluding a contract (for example, credit check and property evaluation). On the other hand, the bank can assess payment behavior after many years of customer relationships.
Debt restructuring by changing the bank
However, many bank customers do not know that it is possible to switch to another bank and carry out a so-called “debt rescheduling” in the form of follow-up financing.
Every borrower should, therefore, get an overview of the conditions of other providers and also obtain concrete offers.
On the one hand, the threatened change of bank could create more room for negotiation at your own bank, on the other hand, it is often really cheaper to arrange follow-up financing with another bank.
Depending on the amount of financing, a change in the bank’s mortgage lending can result in high-interest savings after the expiry of the fixed interest period.
These deadlines must be observed
In order for follow-up financing to run smoothly, you have to observe a few important deadlines. This will prevent you from having to accept a loan offer that is disadvantageous for you at the last minute.
If borrowers take care of follow-up financing in good time, this not only saves nerves but also hard cash. Our infographic shows you what steps and considerations you need to take and when:
Follow-up financing process
Successful follow-up financing does not only mean setting the lowest possible interest rate. We show what you have to consider and which five steps are necessary for optimal follow-up financing:
When can you get out of the current loan agreement?
A look at the end of the fixed interest period answers this important question. You must have provided follow-up financing by this date at the latest: Either with a new loan from the previous lender or with a loan from another bank that is used to repay the previous loan.
You can see which deadlines you have to consider in the graphic above this paragraph. If the interest rate is fixed for more than ten years, the loan can be terminated at any time with six months’ notice, provided that the loan was paid out more than ten years ago.
Key data on follow-up financing
Before you can obtain offers from the previous lender or from other banks, you have to define the key data for the follow-up financing. The key data include
- required loan amount,
- Duration of fixed interest rate,
- maximum monthly rate,
- and based on that, the repayment rate.
Once you have defined this and other key data that occur individually, you can proceed to plan your follow-up financing.
Planning follow-up financing
Once you have informed yourself when you can terminate your current loan contract and what the key data of your follow-up financing look like, you should take a look at the development of the interest rate level. The goal is, of course, to secure the lowest possible interest for follow-up financing.
Timing plays a crucial role in this. You should obtain offers – both from your previous lender and from other banks – at least six months before a possible exit from the current loan agreement.
You should also think about a so-called forward loan. With these forward loans, you can secure interest rates and fixed interest rates up to five years in advance. Above all, this brings you planning security for the future.
Specify repayment – the higher the better
Anyone who changes the provider of follow-up financing can usually enjoy lower interest rates than with the previous loan. However, this interest rate savings should not come at a lower monthly rate. Instead, the monthly installment should remain the same and the repayment increased.
Even better: If your income situation has improved since the previous loan was taken out, you can invest the additional income at a higher monthly rate. This means you are debt-free faster and save unnecessary interest payments.
The monthly repayment rate of your loan should not exceed 40 percent of your disposable income. Our household calculator will help you calculate your monthly disposable income.
Apply for a full mortgage loan
If you can repay the follow-up loan within the next ten to 20 years, it makes sense to take out a full repayment loan. You pay this back in full during the fixed interest period. The advantage: You do not have to worry about follow-up financing again and have interest rate security for the rest of the loan repayment.
Change of provider for follow-up financing?
A change of the financing bank after the end of the fixed interest rate has the disadvantage that this is initially associated with additional costs. The property must be reassessed and the land charge entered in the land register again.
These costs do not apply if you continue the follow-up financing with the previous lender. There is also no need for a new credit check because the previous credit check was sufficient to pay a larger debt and now only a smaller remaining debt has to be paid.
In addition, the protection of the remaining debt is already entered in the land register and higher than the new loan to be secured. The level of mortgage lending plays an important role in real estate financing. A mortgage lending level below 60% of the property value strengthens the negotiating position with the lender.
One advantage of changing providers for follow-up financing is the lower interest rates. Because the current lender calculates the costs for a change of provider and the associated effort in his conditions.
Therefore, banks often trust the convenience of their customers and set the interest rate for follow-up financing above the usual market interest rate.
The customer saves the costs and the processing of a new property and credit rating including land register changes and notary contract; however, he will not receive the best possible interest for his follow-up financing. Checking and comparing offers is therefore essential.
Adjustment of follow-up financing to the current financial situation
Follow-up financing should be adjusted to the current income and expenditure situation. If the previous loan rate has so far been able to be paid without any problems, this amount should be maintained.
In this case, you may even be able to think about a reasonable increase in the monthly rate. This will help you pay off your real estate loan faster and reduce the interest burden.
Anyone who is clever will take care of inexpensive follow-up financing at least six months before the interest rate fixation expires. The interest rate market should be observed and comparisons should be made.