Building interest rates are currently cheaper than ever before. If you started your real estate financing around eight to ten years ago, you are probably currently looking for a way to switch mortgage lending . There are different ways in which you can change your mortgage loan. It is important to compare the individual offers for cheap mortgage lending and also specifically to compare the conditions such as target and effective interest rates .
Switching Home Financing: The Most Important Facts
Anyone who took out a loan as the owner of a property a few years ago may pay a much higher interest rate than is currently customary on the market. This may be due to the current low interest rate phase, where some banks are already granting loans with negative interest rates . Likewise, a high interest rate could have been agreed for other reasons such as a previously poor credit rating. For many consumers, however, there is the option of avoiding expensive real estate financing by changing the mortgage loan if they have a good credit rating. This works simply through a so-called rescheduling . This allows holders of a loan agreement to terminate an old loan and conclude a new one at a lower interest rate. This means that the old loan can be replaced.
When can you cancel your real estate loan?
In principle, the agreed term is binding for both contracting parties. However, there is an exception, according to which the borrower has a special right of termination after ten years. Consumers can then terminate the contract in writing with a notice period of six months.
The lender is not entitled to this option. However, in this case you have to repay the remaining debt within two weeks. You can do this with the help of your new loan agreement at a low interest rate. With this type of redemption, the borrower does not have to pay a prepayment penalty to the lender.
What costs will you incur if you terminate the mortgage loan early?
You can also terminate your loan early in some other cases. An example is a divorce after which the property must be sold. Most lenders provide a prepayment penalty for lost profits in this case. This can be considerably high, especially in times of low interest rates. A five-digit transfer fee is not uncommon.
How is the early repayment penalty calculated?
The lender may calculate his interest loss up to the point in time of the special right of termination. This usually exists after ten years and six months. In doing so, however, the lender must also offset the benefit he has from getting the sum of money back early. This in turn can invest the sum in mortgage letters and thus generate an interest profit.
If another special repayment right has been agreed, the bank must treat the borrower as if he had made use of this option. This can also minimize the amount of compensation. Furthermore, the credit institute must be countered with saved administrative costs of around 100 to 150 euros per year.
In addition, the lender must take into account the no longer risk of default. The credit amounts are currently 0.01 to 0.1 percent of the credit amount per year. The early repayment penalty may also only be calculated from the day on which the money was actually deposited into the bank account. The time of termination is irrelevant.
Most banks also charge an early termination processing fee.
What to look out for when changing mortgage lending
Before terminating the existing mortgage loan, it is essential to talk to your clerk at the bank from which you received the loan. The bank will inform you of the company's claims against you if the contract is terminated prematurely. When rescheduling, it is also important to first wait for a commitment to reschedule. Otherwise there might be some surprises. This is especially true if clauses have been included in the contract that prevent an immediate debt rescheduling.
This is how you can proceed with a debt rescheduling: this is how the change of mortgage lending is cheaper
When rescheduling, it does not matter whether you make use of your special right of termination after ten years or want to terminate your loan early for any other reason: You can compare the mortgage you want and quickly seek cheap follow-up financing so that you can quickly pay off the legacy can.
However, there are many cases where the lender has received security in the form of a mortgage or land charge. This may have to be rewritten. To do this, however, you have to hire a notary who will do the transfer of the land register. This in turn is associated with not inconsiderable costs. These items must be included in the calculation and the question of whether the new loan is cheap or not. The expenses for this are different and depend on a few factors. If you want to save money, you can arrange for an assignment to take place instead of deletion and re-entry, if that is possible. This is much cheaper.
Overview of the most important steps when changing mortgage lending:
- Find a cheap loan
- Conversation with the current bank
- Termination of the loan
- Conclusion of the new loan agreement
- If there is a land charge or a mortgage: cancellation and new registration or assignment
Change of construction financing possible: Important steps must be clarified in advance
Anyone planning to switch mortgage lending must be prepared for a few steps to be taken. That can save a lot of money. The most important things can best be discussed with the current lender. A change in mortgage lending should always be carefully considered and well calculated. You may gain some advantages from this. It is therefore best to weigh your decision carefully and speak to your bank or lender directly. Debt rescheduling can often make sense, as it allows you to lower the monthly payments and give you more financial leeway.