Debt restructuring of real estate loans.

by Edward Debose

There are always times when you had to accept very high interest rates when financing your property. If there is a relatively low interest rate again, you should think about a possible debt rescheduling as a real estate financer. So that a low interest rate phase is not missed and the follow-up interest rate phase suddenly ends in a high interest rate phase, we have already proposed hedging with a forward loan. This option for follow-up financing can be secured when the contract is signed. In all other situations, a corresponding calculation must be made to determine whether rescheduling makes sense in the prevailing situation.

Basically, however, it can be said: Within a fixed interest rate, it makes little sense for a real estate financier to reschedule. This only makes sense if it has been designed for a period of more than 10 years. Because here, according to German legislation, every borrower has the right to repay the previous loan in whole or in part with a period of six months. A debt restructuring can therefore make sense here. If the loan is below this deadline, the real estate financier is not only dependent on the accommodating of his lender, but can also be replaced by a hefty payment of a prepayment penalty.

Fixed interest rate for the construction loan

Fixed interest rate for the construction loan

If, on the other hand, there is an end to the fixed interest rate for the construction loan, then it is easy to reschedule or even switch. Interested parties should not let their bank urge them to stay just because they are told that the change would result in extremely high fees. In most cases, the opposite is the case, because what is ultimately saved through a change is often less than what would have to be paid in fees. Interested parties should therefore not put too much pressure on themselves, but rather analyze the market in good time. Many banks, on the other hand, still rely on the inactivity of their customers and ultimately remain winners only because they offer them completely overpriced offers for follow-up financing. Therefore, use – if necessary – the rescheduling to another lender.

Debt rescheduling or follow-up financing can be carried out for land, condominiums, semi-detached houses and terraced houses, for apartment buildings as well as for one and two-family houses and of course for residential and commercial buildings. In the case of debt rescheduling and follow-up financing, in addition to the commitment fees, there are also partial payment fees in the event that the committed loan is called up later or in partial amounts. There may also be corresponding valuation fees in the event that the lender appraises the property.

If you are on the way to cheap follow-up financing, you should always pay attention to the seriousness of the respective provider. After all, what use is the most tempting offer to the future follow-up financier if all of the financing ultimately leads to the debt trap? So before the final decision to sign the contract is made, prospective buyers should examine an in-depth comparison of the various offers on offer, including a small print, of course. Appropriate follow-up financing can be found very easily on the Internet thanks to global networking.

The pros and cons of debt restructuring

The pros and cons of debt restructuring

As already mentioned, debt restructuring within real estate financing can be rescheduled in two different ways: one is rescheduling when the previous agreement expires, the second is early rescheduling before the previous fixed interest period has expired. A debt rescheduling in the area of ​​mortgage lending is therefore always pending when the fixed interest rate has expired. Borrowers who have agreed on a variable interest rate, that they can use this loan all the way up to full repayment of the loan amount without rescheduling the advantage. In the case of a fixed interest rate agreement, on the other hand, the borrower has the option of deciding whether to extend the loan at the existing conditions or to transfer it to another bank. If the lender is switched to a new loan offer, there is real debt restructuring.

Who wants to make a premature debt restructuring, has, however, that the bank does not have to agree with this commutation the problem. Such approval is almost always granted, but only at a high prepayment penalty. If you do not take this cost factor into account, you may not be able to drive your new interest rate more cheaply, even if it should be cheap. However, this can be avoided by not canceling the loan, but instead applying for a forward loan to replace your old loan. Here the borrower has the decisive advantage that he does not have to cancel his loan, rather he already sets the debt rescheduling for the future. At this point, however, it must also be mentioned that a forward loan can also prove disadvantageous.

This is the case if the interest rates remain at the same level or even fall until the forward loan is drawn. Because a forward loan is only suitable in the event that interest rates will rise significantly in the future. Therefore, before an interested party decides on certain loans as part of a mortgage, a comparison of interest rates should be advised. Because even even the smallest differences between the providers themselves leading in most cases to an enormous savings potential with regard to the applied rates. Interested parties have the opportunity to do this using an interest calculator on various internet platforms. However, if you want to compare interest rates, you should still make sure that the provider also delivers well-founded comparison results.

The interest rate should serve as an interest comparison, ie the comparison should make use of the effective interest rate, since the nominal interest rate does not include costs, fees or repayments. Likewise, there are two types of mortgage interest rates to consider. These differ in the duration of their fixed interest rates. On the one hand there is the interest rate for a variable loan, on the other hand there are different interest rates for fixed loans. Reason: With the duration of the fixed interest rate, the interest rate that the lending bank then demands for the fixed-interest loan also increases accordingly.

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