Securing Lower Interest Rates: Options for Follow-Up Financing

akz-i If the fixed interest rate on a loan expires, follow-up financing is often required. Schwäbisch Hall construction financing expert Ralf Oberländer shows how lower interest rates can be secured.

Follow-up financing is the continuation of building financing with a new loan. After the fixed interest rate expires, three key data are crucial for determining how the remaining loan can be paid off: the term of the current financing, its interest rate and the amount of the remaining debt. There are four options for debt restructuring: prolongation, replacement with a new loan, a forward loan and a pension building savings contract. Borrowers should take care of follow-up financing at least six months before the fixed interest rate expires.

Prolongation: Here the current loan agreement is extended under new conditions. Processing is usually easy because the previous bank remains intact and the value of the property usually does not have to be re-determined. If this has increased due to general property price developments, this can reduce the new interest rate.

Repayment: With this type of debt restructuring, the remaining debt is paid off with the help of a new loan from another bank. Here it is advisable to compare several offers. “Debt restructuring is worth it if the conditions of the new bank are more favorable than the additional costs that arise in connection with the new loan,” says Ralf Oberländer.

Forward loan: With a forward loan, owners secure today’s interest for up to five years in advance – even if the loan is not needed until later. It will be paid out at the end of the specified lead time. “With the forward loan you can secure interest rates that may be higher in the future for a long period of time,” emphasizes Oberländer. However, an interest surcharge of between 0.01 and 0.03 percent is due for each month until payment is made.

Precautionary building savings contract: If you have financial flexibility in addition to repaying the loan, you can save up a building savings contract in the amount of the remaining debt and thus secure low interest rates. If the contract is ready for allocation, the remaining debt can be repaid. “Many building savers receive state funding. We check with financial advisors to determine exactly what they are entitled to,” says Oberländer.

Further information can be found under the further link.