Real Estate

Secure follow-up financing early during Corona

The corona pandemic continues to shake up interest rates on real estate loans. Experts advise: If you can, you should take care of follow-up financing early – and secure the low interest rates.

Real estate owners should look for early follow-up financing before their loan expires. This is particularly true in times of the Corona crisis, the Stiftung Warentest writes in its magazine “Finanztest”.

The pandemic has caused interest rates on real estate loans to fluctuate above average. At the moment, however, the conditions for real estate financing could hardly be better.

While homeowners have had to pay interest of up to five percent on their loans in recent years, some banks are currently offering real estate loans for less than one percent. “If interest rates are low, this is of course a good opportunity,” emphasizes the Association of Private Builders (VPB).

“No one can say with certainty that interest rates will rise in the future,” says Stefan Höhn, project manager at “Finanztest”. But with the current interest rate level, there is simply more scope upwards than downwards. Höhn therefore also recommends that owners secure the low interest rates for follow-up financing.

Higher repayments help reduce debt

When interest rates are low, borrowers are advised to pay off as high as possible. The debt would shrink much faster. In the VPB’s view, however, it is also important to keep an eye on the personal financial situation in the current tense economic situation: “The Corona crisis is messing things up. Everyone must therefore also assess their long-term professional situation.”

The VPB advises those who expect fluctuating income to secure adjustment options for the repayment rate. The same applies to special repayments – especially when inheritances or bonuses are in the offing. In most cases, flexibility in follow-up financing can be bought with an interest surcharge.

Interest premium for forward loans

In the opinion of the “Finanztest” expert Höhn, long-term fixed interest rates are equally important. That makes sense given the current low interest rates. Even homeowners whose interest rate fixing will not expire in several years can already secure the favorable conditions today: With appropriate forward loans, borrowers can reserve the current interest rates up to five years in advance. Banks can also pay for this security with interest premiums. The longer the lead time, the higher the surcharge.

Many banks reserve the current interest conditions free of charge for up to twelve months. Accordingly, it is worth taking a close look at the conditions before the interest rate lock expires.

Loans that were paid out more than ten years ago can be canceled at any time with a notice period of six months. If the interest rate agreed there was higher than the current one, it is usually worth switching to follow-up financing. An early exit from the loan agreement, on the other hand, is almost never worthwhile, since the banks then often demand prepayment penalty.

Changing the bank can be worthwhile

In order to pay the remaining debt, it is not uncommon to switch banks – although, according to the “Finanztest” experts, many customers overestimate the hurdles of taking this step. The costs in relation to the loan amount are hardly significant. As a rule, switching is worthwhile as soon as a bank makes a better offer.

“Customers should not immediately accept the first best offer from their bank, but rather compare the conditions of several financial institutions,” advises Annabel Oelmann, head of the Bremen consumer advice center. Many customers would only consider follow-up financing if their bank made an offer to them a few months before the fixed interest rate expired – “but that is far too late.”

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