Which follow-up financing option is most affordable for me?
Most homeowners haven't fully paid off their mortgage when the initial fixed-interest loan term expires. Now it's crucial to secure follow-up financing at favorable rates. Depending on interest rate trends, choosing the right follow-up financing can save a significant amount of money while paying off debt.
Before the term and fixed interest rate period of your current loan expire, it's advisable to find out about expected interest rate trends and secure suitable follow-up financing. While the bank will contact you before the contract ends, rising interest rates could mean it's already too late to secure favorable terms for refinancing. Homeowners have a choice of three models.
Follow-up financing: Forward loans
A forward loan gives you the opportunity to secure current interest rates for the continued financing of your property up to five and a half years before the end of the fixed interest period of your existing loan. This makes sense if interest rates are currently low. This provides you with planning security, as interest and repayment rates are fixed from the outset and remain valid even if market interest rates rise significantly in the meantime. However, a premium is usually charged for this. Furthermore, the advantage can turn into a disadvantage should market interest rates fall further.
Follow-up financing: Extension
Another option is a loan extension, meaning the renewal of the existing loan agreement with your current financial institution. The newly agreed interest rate will then be based on current market rates. This model is less advantageous if rising interest rates are expected, as this would increase your monthly payment compared to the current rate. The benefit is that you remain contractually bound to your bank. This eliminates both the costs of transferring the mortgage lien and the need for a new credit check.
Follow-up financing: Debt restructuring
Nevertheless, it can be worthwhile to obtain offers from other banks early on to potentially secure more favorable terms. This is especially true when market interest rates are falling, as your current bank may not be passing these savings on to you in full. Switching banks, or refinancing, incurs additional costs. Transferring the mortgage lien to the new lender is subject to fees, as are notary fees and a new credit check. Refinancing only makes sense if these additional costs are offset by the lower interest rate.
Conclusion
We are currently experiencing an unusually long period of low interest rates, but opinions regarding future inflation risks vary widely. If you are unsure how to approach this situation with your refinancing options, it is best to consult a real estate professional! Based on years of experience and in-depth market knowledge, reputable real estate agents can show you precisely which option is currently most advantageous for you and your property.
Do you have questions about your follow-up financing? Then contact us! We'd be happy to advise you.
You can find more information here:
https://rp-online.de/leben/bauen/finanzierung-einer-eigenen-immobilie-ohne-eigenkapital_aid-44073425
https://de.wikipedia.org/wiki/Immobilienfinanzierung
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.
Photo: © halfpoint/Depositphotos.com
About the author
Harry Mohr
Real estate agent (Chamber of Industry and Commerce)Harry Mohr, author of this article
