Refinancing a mortgage

The dream of owning a home is often impossible to fulfill without financial support from a bank. Therefore, it's not surprising that many homeowners are still paying off an existing mortgage. But what happens when the fixed interest rate period ends before the mortgage is fully paid off? One option to resolve this dilemma is refinancing.

When refinancing, homeowners secure a new loan with a different lender at a lower interest rate. It's crucial to know when the current fixed interest rate period ends. Anyone wishing to refinance at the end of their fixed interest rate period must submit their loan termination notice three months prior to the expiration date. Homeowners can also choose to switch to a lender offering more favorable interest rates.

Advantages and disadvantages of debt restructuring

If the new loan agreement offers lower interest rates, homeowners have the opportunity to pay off the loan faster. This allows for a higher monthly payment over a shorter loan term. However, finding a new financing partner who offers refinancing at more favorable rates is time-consuming and stressful. Many discussions with banks are necessary before then. The support of a real estate agent is often very helpful. Together with the agent, homeowners can search for a suitable financing partner.

But finding follow-up financing not only takes a lot of time, but also carries the uncertainty of whether the renewed loan application will be rejected. After all, the current credit check could also be negative. Furthermore, those who opt for early refinancing often have to pay a prepayment penalty to the bank. This can be avoided under certain conditions.

Refinancing before the end of the fixed interest period

Homeowners who want to switch lenders before the end of their fixed interest period need to know whether the fixed interest period has been running for more than ten years or is still within the ten-year limit. This determines whether refinancing is possible without incurring costs. After ten years, termination is possible without costs. This is because, after the ten-year period, the borrower can exercise their special right of termination (§489 BGB).

The notice period is then six months. Before the ten-year limit, the bank can refuse the termination. If the bank agrees to the termination, a prepayment penalty usually has to be paid. However, this can be avoided not only if the fixed interest rate period has already been in effect for ten years, but also if a variable-rate loan has been contractually agreed upon with the bank. This is because there is no fixed interest rate in this case.

Refinancing at the end of the fixed interest rate period

Anyone who doesn't refinance early must inform their existing lender that they do not wish to extend their current mortgage. The new lender needs to know exactly when the fixed interest rate period ends, as this is when the remaining loan balance will be paid off with the new mortgage.

Are you looking for a financing partner for follow-up financing? Then contact us! We would be happy to support you with your project.

You can find more information here:

Debt restructuring – Wikipedia

Follow-up financing – Wikiwand

Variable loan explained – Kredite.de

Notes

For the sake of readability, this text uses the generic masculine form. Female and other gender identities are explicitly included where relevant to the statement.

Legal notice: This article does not constitute tax or legal advice for any specific case. Please consult a lawyer and/or tax advisor to clarify the facts of your individual situation.

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