Follow-on financing: when refinancing pays off

When the fixed-interest period ends, it pays to look beyond your current bank. Its extension offer is convenient but rarely the cheapest. This is exactly where a comparison often makes a big difference.

Prolongation, refinancing, forward

You have three options: extend with your current bank (prolongation), switch to another bank (refinancing) or secure the rates with a forward loan up to five years in advance. Which route suits you depends on the remaining debt, the term and your interest rate expectations.

What switching banks really costs

The worry about high switching costs is usually unfounded. With refinancing, the existing land charge is normally assigned to the new bank; a new notary appointment is not necessary for you. The assignment and land register amendment together cost around 0.2 to 0.3 percent of the land charge amount. On €200,000 that is €400 to €600, which a better interest rate often recoups within a few months.

After ten years you are always free

Many people do not know that long fixed-interest periods are open-ended. Under Section 489 of the German Civil Code you can terminate any property loan ten years after the funds have been fully released with six months’ notice, without an early repayment charge. So if you agreed a 15- or 20-year fixed-interest period at higher rates years ago, you can refinance before it ends if the market has since become more favourable.

Forward loan: interest rate security in advance

With a forward loan you lock in today’s terms for follow-on financing that only begins in a few months or years. The bank charges a premium for this, often 0.01 to 0.03 percentage points per month of lead time. Whether this pays off is a trade-off between the premium and your need for security. If you want to sleep soundly and expect rising rates, the premium buys you predictable instalments for many years.

The right timing

Depending on the bank, you can secure today’s terms up to 60 months before the end. If you wish, we get in touch in good time so that you do not come under time pressure and do not miss any deadline.

As a rough roadmap, it has proven worthwhile to watch the market around three years before the end and to obtain specific offers at the latest 12 to 18 months beforehand. Your current bank’s extension offer often arrives only a few weeks before the deadline. With a market comparison already in the drawer, you negotiate from a completely different position.

Worked example: 0.4 percentage points, €6,500

An example with €200,000 remaining debt, 3 percent repayment and a new ten-year fixed-interest period shows how much a comparison can save. Your current bank offers 3.9 percent, the best comparison offer is 3.5 percent.

The cheaper offer saves around €6,500 in interest over ten years, with a monthly instalment €67 lower. If you put the saved instalment into additional repayment, you are even debt-free sooner than with your current bank’s offer.

How refinancing works

The effort for you is manageable. You compile current proof of income and the property documents, we compare the offers of more than 600 banks and accompany the conclusion. The new bank pays off the old loan on the due date and handles the assignment of the land charge directly with the previous bank. You sign the new contract and simply pay the new, lower instalment from the following month.

Making the savings visible

It is often a matter of several thousand euros over the remaining term. We calculate your current offer honestly against the market, in black and white. If your current bank stays ahead, we tell you that too.

Early repayment charge: when it applies and when it does not

For planning, the difference between a regular and an early exit matters. At the end of the fixed-interest period and after the ten-year period under Section 489 of the German Civil Code, you switch without any compensation. If you leave the contract early in the middle of the fixed-interest period, for example because of a sale, you pay the bank an early repayment charge for the lost interest. Depending on the remaining term and interest rate level, this can be considerable. For normal follow-on financing, however, it plays no role, because the old contract ends anyway. So do not let the fear of costs stop you from comparing offers in good time. And if your bank demands compensation even though the ten-year period has already expired, it is worth looking closely at the dates of release and termination. We are happy to check this with you if in doubt.