Federal Court of Justice strengthens the rights of bank customers in the event of premature termination of financing

Under certain circumstances, borrowers may be able to terminate their current real estate financing early at lower costs, because a clause in loan agreements criticized by consumer advocates has been overturned by the Federal Court of Justice.

The Aurich Savings Bank had stipulated in its contracts that borrowers could make one extra repayment per year without this affecting the calculation of the prepayment penalty.
The Federal Court of Justice (BGH ) disagreed, ruling that if extra repayments were possible, the bank could not expect to receive the full interest. If a bank generally disregards the right to make extra repayments when calculating the prepayment penalty, this leads to overcompensation that is not covered by the damages calculation and is not offset elsewhere. Furthermore, it is irrelevant to the assessment whether the customer actually intends to make extra repayments and has the necessary funds. (Case No. XI ZR 388/14).

In another case, the Federal Court of Justice (BGH) also rejected the idea that banks could simply charge defaulting payers a prepayment penalty instead of default interest when terminating a mortgage loan.

A savings bank had demanded approximately €90,000 in compensation after prematurely terminating two loans. According to the Federal Court of Justice (BGH), the legislature intended, in principle, to preclude the possibility of using the contractual interest rate for calculating damages after termination. The court held that if this resulted in a customer who breached the contract being placed in a more favorable position than a customer who complied with the contract, the legislature had consciously accepted this consequence (Case No. XI ZR 103/15).