Getting out of that expensive mortgage?

The right of withdrawal ends on June 21, 2016!

When banks make mistakes, the consequences are usually serious. But this time, the customer benefits: Millions of construction and real estate loans granted between 2002 and 2010 are vulnerable to challenge due to invalid cancellation instructions. Those who act quickly now have a good chance of saving thousands of euros in interest. But speed is essential, because the "cancellation loophole" only applies until June 21, 2016.

If you want to get out of an expensive mortgage on a house or apartment to secure more favorable interest rates through refinancing, you should have your loan agreement reviewed by a specialized lawyer. If the contract was concluded after November 1, 2002, you have a good chance of success, because the cancellation policy in approximately 80 percent of mortgage loan agreements concluded between 2002 and 2010 is flawed. This was the conclusion reached by consumer protection agencies and lawyers after reviewing around 50,000 contracts. The clauses often contain unclear or ambiguous statements and thus violate the requirement of clarity. (Examples can be found in Finanztest 7/2014 or at www.finanzwacht.de .)

“Many lawyers offer a free contract review. We currently receive around 500 inquiries every week,” says attorney Philipp J. Caba of the “Forum Finanzwacht” in Berlin. “Of ten contracts reviewed, eight are flawed and five are seriously incorrect. And then it’s worth pursuing legal action,” Caba believes, “because the interest savings from refinancing can be significant, considering that in 2008, mortgage loans were still earning four to six percent interest, while the market rate today is below two percent.”

So, if you still have €100,000 to pay off and are making monthly payments of €700, your remaining debt after five years will be approximately €78,000 at an interest rate of 4.5 percent. At an interest rate of 2.5 percent, the remaining debt would be €69,000. You would therefore have saved €9,000. However, since the entries in the land register need to be changed, refinancing also incurs costs. These amount to approximately 0.3 percent of the loan amount.

The bank must pay compensation for use

Furthermore, the borrower can demand compensation for the use of all loan installments paid. This means the bank must return what it earned from the installment payments. Depending on the court, 2.5 to 5 percentage points are added to the base interest rate. "And that's not all, because the principal repayment portion also accrues interest," explains the lawyer. Revoking the loan agreement is also worthwhile if you want to sell your property before the end of the fixed interest period: If successful, the prepayment penalty, which is usually substantial, is waived. Incidentally, you can also reclaim this penalty even if the loan has already been repaid. According to lawyer Caba's experience, banks initially resist, "but with legal insurance, it's usually straightforward to negotiate at least a favorable settlement. Banks often offer their customers better terms to retain them," the lawyer says.

His advice: The lawyer you consult should be knowledgeable in banking and capital markets law, because the risk of litigation increases if the customer not only wants to withdraw from the contract but also insists on its reversal. In this case, the customer is also obligated to pay. They must at least repay the outstanding balance within 30 days. Therefore, only cancel your contract once your follow-up financing is secured!

You can also cancel your loan agreement by fax or email no later than June 21, 2016. Sample cancellation letters can be found at finanztest.de (www.test.de). You can use the Finanztest calculator ( www.test.de/Baudarlehen-Kredit-und-Tilgungsrechner-1159351-0/ ) to check whether cancellation is worthwhile for you.

Sources: Finanztest 7/2014 (Stiftung Warentest), BGB, finanzwacht.de, verbraucherzentrale.de, finanztipp.de, focus.de.