A debt rescheduling of a building loan can be a good reason for the fact that such loans are usually concluded with large sums of money. Accordingly, borrowers and the bank agree on a long term to repay the debt. Over time, it may happen that the current interest on a building loan is lower than that contractually agreed. In this respect, borrowers should consider rescheduling, taking into account some peculiarities. Acting too quickly can have adverse consequences.
The possibility of debt rescheduling on a home loan:
With the debt rescheduling of an existing building loan, the remaining debt of the old loan is to be paid. Thus, the provider of the new loan takes over the follow-up financing, which differs from the prolongation. Rescheduling can often save consumers a lot of money. In this respect, there is also a significant difference to the prolongation.
Before the borrower rushes to find a new lender to pay off his remaining debt, he should first check when the fixed interest rate ends. If the rate lock is longer than five years, rescheduling is only possible under certain conditions.
However, if the remaining fixed interest rate is between one and five years, the debt rescheduling is often carried out using a so-called forward loan. The reason is that the current interest from the loan should continue to exist in the future.
However, if the fixed interest rate ends within the next twelve months, the debt rescheduling for your own property will not cause any difficulties, since it is not subject to any further requirements. This is because an end to the loan repayments is already in sight and the rescheduling will not take any noticeable risks.
These costs should be considered when rescheduling:
A debt rescheduling only makes sense if it is ultimately economical for the debtor. Property owners who want to replace a construction loan with a loan that offers more favorable interest rates before the end of the contractually agreed fixed interest period will regularly want to give the creditor a financial memo to change intentions. In such cases, banks tend to pay the customer a penalty. The credit institutions cite the lost interest income as the reason for the penalty.
How high the payment will ultimately be depends primarily on the loan amount and the interest accruing from it. It can therefore happen that the savings in interest that are supposed to result from debt restructuring are noticeably reduced or even fully compensated for by the penalty payment. In order to determine the anticipated compensation payments in advance, consumers can access so-called prepayment calculators on the Internet. Ultimately, this makes it easier to weigh up the financial balance between old and potential new loans.
Since a building loan is taken out to finance a property, those affected must also plan with processing or notary fees when taking out a debt rescheduling loan. The notary is essential because the land charge on the property is transferred to the new lender. Here the law provides for a notarial written form.
In some cases, providers of a debt rescheduling loan assume the costs associated with the change. It is therefore worthwhile for those interested to speak to the new lender in advance. A debt rescheduling is therefore particularly worthwhile in those cases in which a financial gain can actually be achieved through the interest savings. In this respect, interest savings and the costs associated with retraining are offset against each other.
The advantages and disadvantages of rescheduling a construction loan:
The main advantage of rescheduling an existing construction loan is the interest savings, insofar as the new lender offers a lower-interest loan. It should be taken into account that just a few percentage points can mean a serious difference to the old loan. Every year, some thousands of USD can be saved. This money can now be used to increase the monthly installments, which in turn will lead to a shorter repayment period. This means that the debtor is released from his liabilities more quickly in terms of time.
The conclusion of a new loan can also be linked to better conditions. In particular, it can be worthwhile to negotiate cheaper arrangements for a possible special repayment with the lender.
On the other hand, it is disadvantageous that the borrower now selects a new contract partner for debt rescheduling. Many borrowers are reluctant to do this because it is easier for them to run their building loan through the previous provider. With a change, time-consuming research is ultimately necessary so that ultimately no loss-making business is carried out. In addition, prospective customers should intensively consider possible agency fees or processing costs in order to be able to decide whether rescheduling makes financial sense at all.