As soon as the fixed interest rate for mortgage lending has expired, you can choose between two options for follow-up financing. You can either extend your loan with the current lender or consider rescheduling . Whether a prolongation or rescheduling makes sense for you depends on many factors. This guide will provide you with information on both options to make your decision easier.
What is meant by a prolongation?
When a mortgage loan is taken out, the bank sets an interest rate with the borrower that is usually 10 to 15 years. At the end of the fixed interest rate, a residual debt usually has to be paid. If you cannot pay off the remaining debt with your own financial resources, you can opt for an extension of the mortgage loan. If the follow-up loan is taken out at the lending bank, it is called a prolongation. Before you decide on a prolongation, you should obtain other offers.
How does the prolongation work?
About three months before the fixed interest rate for a building loan expires, the lender will usually present an offer for further financing of the property. However, the bank is not obliged to make you a new financing offer. Usually the lender is interested in you extending the financing. If the customer's creditworthiness has deteriorated to such an extent that the lender sees a risk of default, you will have to look for another lender. However, if the lender makes the borrower a prolongation offer, only a new interest rate and a term are set. If a special repayment was approved when the construction financing was concluded, it remains unaffected. Also possibly other contractual elements, such as deferral of installments .
Take care of your follow-up financing in good time
If the fixed interest rate of the mortgage lending is only about 12 months, the borrower can already apply for a prolongation at the lending bank. A timely conclusion can be worthwhile if, for example, the building interest is expected to rise. In this way, the borrower secures a favorable interest rate if the home loan is extended in good time. Even if the house bank makes an offer, it doesn't necessarily have to be the best. You should obtain other loan offers before the fixed interest rate expires. You can often lower the monthly installments significantly when rescheduling . When rescheduling, the lender will replace the loan. Please note that you will be charged notary and land registry fees in the event of a rescheduling. You should also bear this in mind when comparing loans .
Do regular customers pay on it? Can convenience get expensive?
Often times, customers extend their home loan with the same lender for convenience. However, this can be expensive under certain circumstances. The customer should therefore carefully examine the offer of the bank. Depending on the development of interest rates, other lenders can offer you better conditions.
Advantages and disadvantages of a prolongation
|Borrower knows his bank advisor and his bank's operations||Often worse conditions than other banks|
|Time savings by eliminating a loan comparison||Restrictions on contract design (such as special repayments or installment breaks)|
|no new credit check|
|no changes need to be made in the land register, so there are no additional costs|
When is it worth rescheduling instead of a prolongation?
A rescheduling can bring you better conditions instead of a prolongation. The contractual regulations could be adapted. This not only means a lower interest rate, but more can be repaid at the same rate. If necessary, the monthly rate can also be reduced significantly. A lot of money can be saved with a rescheduling.
Advantages and disadvantages of rescheduling
|You can benefit from a better interest rate||You will be billed for notary and land registry fees|
|monthly payments can be lowered||Another credit check is carried out|
|additional credit can be applied for||Higher effort|
|Special repayments can be negotiated|
What is more worthwhile, prolongation or rescheduling?
Renewals are straightforward and quick. The previous contract will be continued. Whether a prolongation is worthwhile depends on the offer to extend the mortgage loan.
If, for example, special repayments, the amount of the installments and the duration should be adjusted, rescheduling seems to be the better option. If you decide to reschedule, you have various options to complete the follow-up financing with a better interest rate. Borrowers should not rely on their own house bank to offer better terms for a prolongation or rescheduling. Here convenience and confidence in the bank should balance each other out.
As a rule of thumb, the higher the remaining debt, the better a rescheduling. If the remaining debt is rather low, a change is often not worthwhile, since you will have to pay notary and land registry fees, for example.